nep-mon New Economics Papers
on Monetary Economics
Issue of 2019‒05‒27
28 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Financial Stability and the Fed: Evidence from Congressional Hearings By Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch
  2. Why private cryptocurrencies cannot serve as international reserves but central bank digital currencies can By Andrew Clark; Alexander Mihailov
  3. Have we been measuring monetary policy correctly? Analysing the Federal Reserve’s policies over the last century By Pavon-Prado, David
  4. Shocking Interest Rate Floors By Fabio Canetg; Daniel Kaufmann
  5. Strengthening the Monetary Policy Framework in Korea By Kevin Clinton; R. S Craig; Douglas Laxton; Hou Wang
  6. How does the interaction of macroprudential and monetary policies affect cross-border bank lending? By Előd Takáts; Judit Temesvary
  7. Monetary policy and bank profitability in a low interest rate environment By Carlo Altavilla; Miguel Boucinha; José-Luis Peydró
  8. Analysing monetary policy statements of the Reserve Bank of India By Aakriti Mathur; Rajeswari Sengupta;
  9. Negative interest rates, excess liquidity and retail deposits: banks’ reaction to unconventional monetary policy in the euro area By Demiralp, Selva; Eisenschmidt, Jens; Vlassopoulos, Thomas
  10. The impact of inflation expectations on the effects of monetary policy By Perevyshin, Yuriy (Перевышин, Юрий); Petrova, Diana (Петрова, Диана)
  11. The Effects of Lender of Last Resort on Financial Intermediation during the Great Depression in Japan By Masami Imai; Tetsuji Okazaki; Michiru Sawada
  12. The global capital flows cycle: structural drivers and transmission channels By Habib, Maurizio Michael; Venditti, Fabrizio
  13. Development of approaches to the assessment of welfare losses due to inflation in Russia By Sinelnikova-Muryleva, Elena (Синельникова-Мурылева, Елена)
  14. Globalization, Market Power, and the Natural Interest Rate By Jean-Marc Natal; Nicolas Stoffels
  15. Enabling Deep Negative Rates to Fight Recessions: A Guide By Ruchir Agarwal; Miles Kimball
  16. Understanding inflation dynamics in the Kingdom of Eswatini: a univariate approach By NYONI, THABANI; MUTONGI, CHIPO; NYONI, MUNYARADZI; HAMADZIRIPI, OSCAR HAPANYENGWI
  17. Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures By Manaa, Mehdi; Chimienti, Maria Teresa; Adachi, Mitsutoshi; Athanassiou, Phoebus; Balteanu, Irina; Calza, Alessandro; Devaney, Conall; Diaz Fernandez, Ester; Eser, Fabian; Ganoulis, Ioannis; Laot, Maxime; Philipp, Günther; Poignet, Raphael; Sauer, Stephan; Schneeberger, Doris; Stracca, Livio; Tapking, Jens; Toolin, Colm; Tyler, Carolyn; Wacket, Helmut
  18. Are inflation rates in OECD countries actually stationary during 2011-2018? Evidence based on Fourier Nonlinear Unit root tests with Break By Yaya, OlaOluwa S; Ogbonna, Ahamuefula; Atoi, Ngozi V
  19. "When to Ease Off the Brakes--and Hopefully Prevent Recessions" By Harold M. Hastings; Tai Young-Taft; Thomas Wang
  20. Modeling the long-run relationship between inflation and economic growth in Zimbabwe: a bi-variate cointegration (Engle-Granger Two-Step) approach By NYONI, THABANI; MUTONGI, CHIPO
  21. Demystifying inflation dynamics in Rwanda: an ARMA approach By NYONI, THABANI
  22. Measuring euro area monetary policy By Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe
  23. The role of the rand as a shock absorber By Luchelle Soobyah; Daan Steenkamp
  24. Modeling and forecasting inflation in The Gambia: an ARMA approach By NYONI, THABANI; MUTONGI, CHIPO
  25. The dollar and the Transition to Sustainable Development: From Key Currency to Multilateralism By Michel Aglietta; Virginie Coudert
  26. What are the consequences of global banking for the international transmission of shocks? A quantitative analysis∗ By Jose L. Fillat; Stefania Garetto; Arthur V. Smith
  27. The law of a single price and inflation differences in Russian regions By Dobronravova, Elizaveta (Добронравова, Елизавета); Perevyshin, Yuriy (Перевышин, Юрий); Shemyakina, Kira (Шемякина, Кира)
  28. Theoretical approaches to the release of cryptocurrency by central banks and practical projects for their implementation By Korishchenko, Konstantin (Корищенко, Константин)

  1. By: Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch
    Abstract: This paper retraces how financial stability considerations interacted with U.S. monetary policy before and during the Great Recession. Using text-mining techniques, we construct indicators for financial stability sentiment expressed during testimonies of four Federal Reserve Chairs at Congressional hearings. Including these text-based measures adds explanatory power to Taylor-rule models. In particular, negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylor-rule factors, even in the decades before the Great Recession. These findings are consistent with a preference for monetary policy reacting to financial instability rather than acting pre-emptively to a perceived build-up of risks.
    Keywords: monetary policy; financial stability; Taylor rule; text mining
    JEL: E52 E58 N12
    Date: 2019–05
  2. By: Andrew Clark (Department of Economics, University of Reading); Alexander Mihailov (Department of Economics, University of Reading)
    Abstract: This paper begins by a recap on the ambition and mechanism behind Bitcoin, followed by an overview of the top 10 cryptocurrencies by market capitalization. Our focus is on their price dynamics and volatility relative to those of fiat paper money and gold, assets that have traditionally served the functions of money and international reserves. We then perform a counterfactual analysis using the Bank of England's foreign currency reserves to determine the hypothetical performance in terms of relative volatility of two alternative reserve portfolios consisting of 0.1%, 1%, or 10% holdings of either Bitcoin only, since July 2010, or of a portfolio of 50% Bitcoin and 50% Ethereum, since July 2015. Revisiting in this light the functions of money and international reserves, we expound on why private cryptocurrencies do not meet the inherent requirements for both money and international reserve assets, whereas central bank digital currencies do meet these requirements. We, finally, "scale" the magnitude and dynamics of the recent Bitcoin bubble into a historical perspective, and conclude by a discussion of areas where blockchain-based and FinTech technologies could be beneficial in international trade, payments, banking and finance.
    Keywords: Bitcoin, cryptocurrency, blockchain, FinTech, central bank digital currency, international reserve assets
    JEL: G23 E50 E59
    Date: 2019–05–20
  3. By: Pavon-Prado, David
    Abstract: Unlike the standard and erroneous practice of using the federal funds rate or another intermediate target to measure the monetary policy stance, a new procedure is developed using the actual Federal Reserve’s instruments and the spread between short-term rates and the discount rate. Accordingly, I estimate a time-varying coefficient Bayesian SVAR for the interwar period and 1958- 2007. The new technique unveils a new mechanism operating between Fed’s policies and the real economy. The results show that monetary policy was mostly irrelevant for the interwar period, but the situation changed after 1958. For this last case, however, the new mechanism, which focuses on the cost at which banks obtain reserves, explains that positive spreads between the federal funds rate and the discount rate contributed to increasing inflation, revealing that the “price puzzle” is non-existent.
    Keywords: Federal Reserve; monetary policy
    JEL: E58 E52 E51 E43
    Date: 2019–05
  4. By: Fabio Canetg; Daniel Kaufmann
    Abstract: We identify the dynamic causal effects of interest rate floor shocks, exploiting regular auctions of Swiss central bank debt securities (SNB Bills). A theoretical model shows that variation in the volume of, and yield on, central bank debt changes the interest rate floor. In addition, the model establishes the equivalence between central bank debt and interest-bearing reserves when reserves are ample. Based on these insights, the empirical analysis identifies an interest rate floor shock in a dynamic event study of SNB Bill auctions. A restrictive interest rate floor shock causes an increase in the money market rate, a persistent appreciation of the Swiss franc, a decline in long-term interest rates, and a decline in stock prices. We then perform policy experiments under various identifying assumptions in which the central bank raises the interest rate floor from 0% to 0.25%. Such a policy change causes a 3-6% appreciation of the Swiss franc and a 5-20% decline in stock prices.
    Keywords: Exit strategies, interest rate floors, central bank debt securities, interest on reserves, monetary policy shocks, identification through heteroscedasticity
    JEL: E41 E43 E44 E52 E58 C32
    Date: 2019–05
  5. By: Kevin Clinton; R. S Craig; Douglas Laxton; Hou Wang
    Abstract: Adoption of inflation targeting by the Bank of Korea (BOK) in 1998 contributed to low and stable inflation. However, after the global financial crisis (GFC) monetary policy faced more challenging conditions. Inflation slipped below the target range in 2012 and remains below it despite a cut in the target to 2 percent in 2016. Policy also became more complex with the addition of financial stability to the central bank’s mandate. To address these challenges, this paper proposes a two-pronged approach to strengthen the effectiveness with which monetary policy can meet its objectives: first, enhanced communication on how the target will be achieved over the medium-term, building on a forecasting and policy analysis system; and, second, by clarifying the complementary role of macroprudential policy in containing financial stability risks so that monetary policy can focus on the inflation target. Simulation of a macro model calibrated to Korea illustrates how it can be used to provide this greater medium-term focus on achieving the inflation target and strengthen communication.
    Date: 2019–05–10
  6. By: Előd Takáts; Judit Temesvary
    Abstract: We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant.
    Keywords: monetary policy, macroprudential policy, cross-border claims, diff-in-diff analysis
    JEL: F34 F42 G21 G38
    Date: 2019–05
  7. By: Carlo Altavilla; Miguel Boucinha; José-Luis Peydró
    Abstract: We analyse the impact of standard and non-standard monetary policy on bank profitability. We use both proprietary and commercial data on individual euro area bank balance-sheets and market prices. Our results show that a monetary policy easing – a decrease in short-term interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Accommodative monetary conditions asymmetrically affect the main components of bank profitability, with a positive impact on loan loss provisions and non-interest income offsetting the negative one on net interest income. A protracted period of low monetary rates has a negative effect on profits that, however, only materialises after a long time period and is counterbalanced by improved macroeconomic conditions. Monetary policy easing surprises during the low interest rate period improve bank stock prices and CDS.
    Keywords: bank profitability, monetary policy, lower bound, quantitative easing, negative rates
    JEL: E52 E43 G01 G21 G28
    Date: 2017–10
  8. By: Aakriti Mathur (IHEID, Graduate Institute of International and Development Studies, Geneva); Rajeswari Sengupta (Indira Gandhi Institute of Development Research (IGIDR));
    Abstract: In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy. Next, we study the influence of various aspects of monetary policy communication on financial markets. Using natural language processing tools, we construct measures of linguistic and structural complexity that capture governor-specific trends in communication. We find that while RBI’s monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years. We also find that there has been a persistent semantic shift in RBI’s monetary policy communication since the adoption of inflation-targeting. Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.
    Keywords: Monetary policy, central bank communication, linguistic complexity, financial markets, textual analysis, natural language processing
    JEL: E52 E58 G12 G14
    Date: 2019–05–22
  9. By: Demiralp, Selva; Eisenschmidt, Jens; Vlassopoulos, Thomas
    Abstract: Negative monetary policy rates are associated with a particular friction because the remuneration of retail deposits tends to be floored at zero. We investigate whether this friction affects banks’ reactions when the policy rate is lowered to negative levels, compared to a standard rate cut in the euro area. We exploit the cross-sectional variation in banks’ funding structures jointly with that in their excess liquidity holdings. We find evidence that banks highly exposed to the policy tend to grant more loans. This confirms studies that point to higher risk taking by banks as a reaction to negative rates. It, however, contrasts some earlier research associating negative rates with a contraction in loans. We illustrate that the difference is likely driven by the broader coverage of our loan data, longer time span of our sample and, importantly, the explicit consideration of the role of excess liquidity in our analysis. JEL Classification: E43, E52, G11, G21
    Keywords: bank balance sheets, monetary transmission mechanism, negative rates
    Date: 2019–05
  10. By: Perevyshin, Yuriy (Перевышин, Юрий) (The Russian Presidential Academy of National Economy and Public Administration); Petrova, Diana (Петрова, Диана) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Inflation expectations of economic agents play a key role in the efficiency of monetary policy conducted by a central bank. In this study we obtained estimates of inflation expectations based on the government bonds yields. We also developed methodology for conducting a population survey on the perceived and expected change in prices, and summarized results of the first such survey. After that we simulated the effects of the monetary policy shock with various methods of inflation expectations formation. Finally, we assessed the degree of confidence in the actions and policies of the Bank of Russia by households and the expert community.
    Date: 2019–04
  11. By: Masami Imai; Tetsuji Okazaki; Michiru Sawada
    Abstract: The interwar Japanese economy was unsettled by chronic banking instability, and yet the Bank of Japan (BOJ) restricted access to its liquidity provision to a select group of banks, i.e. BOJ correspondent banks, rather than making its loans widely available "to merchants, to minor bankers, to this man and to that man" as prescribed by Bagehot (1873). This historical episode provides us with a quasi-experimental setting to study the impact of Lender of Last Resort (LOLR) policies on financial intermediation. We find that the growth rate of deposits and loans was notably faster for BOJ correspondent banks than the other banks during the bank panic phase of the Great Depression from 1931-1932, whereas it was not faster before the bank panic phase. Furthermore, BOJ correspondent banks were less likely to be closed during the bank panics. To address possible selection bias, we also instrument a bank's corresponding relationship with the BOJ with its geographical proximity to the nearest branch or the headquarters of the BOJ, which was a major determinant of a bank's transaction relationship with the BOJ at the time. This instrumental variable specification yields qualitatively same results. Taken together, Japan's historical experience suggests that central banks' liquidity provisions play an important backstop role in supporting the essential financial intermediation services in time of financial stringency.
    Date: 2019–01
  12. By: Habib, Maurizio Michael; Venditti, Fabrizio
    Abstract: In this paper, we study the effects of structural shocks that influence global risk – the main factor behind a “global capital flows cycle” – and how risk, in turn, is transmitted to capital flows. Our results show that not all the risk shocks driving the global financial cycle have the same effects on capital flows. Changes in global risk caused by pure financial shocks have the largest impact on the global configuration of capital flows, followed by US monetary policy shocks. As regards the transmission of risk to capital flows, we uncover a traditional “trilemma”, as countries more financially open and adopting a strict peg are more sensitive to global risk. This “trilemma” is mainly driven by one category of cross-border flows, “other investment”, confirming the importance of cross-border banking loans in the narrative of the global financial cycle. JEL Classification: E42, E52, F31, F36, F41
    Keywords: capital flows, global financial cycle, global risk, international spillover, monetary policy
    Date: 2019–05
  13. By: Sinelnikova-Muryleva, Elena (Синельникова-Мурылева, Елена) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: This workpaper is devoted to the elaboration of approaches that can be used to estimate welfare costs of inflation, taking into account the peculiarities of the Russian economy, as well as obtaining quantitative estimates. The first section discusses theoretical models in the framework of the partial equilibrium approach, proposed in the papers of Bailey, Friedman, and Lucas, and giving ways to calculate costs of inflation. The second section provides an overview of international experience in costs of inflation estimation in countries with different levels of inflation; it is concluded that the results of the estimation are extremely sensitive to the choice of the functional form of the demand for money equation and, as a consequence, the estimated coefficients of the equation. The third section presents modifications of standard approaches used to estimate the costs of inflation, taking into account the prolonged growth of monetization in the Russian economy.
    Date: 2019–04
  14. By: Jean-Marc Natal; Nicolas Stoffels
    Abstract: We argue that strong globalization forces have been an important determinant of global real interest rates over the last five decades, as they have been key drivers of changes in the natural real interest rate—i.e. the interest rate consistent with output at its potential and constant inflation. An important implication of our analysis is that increased competition in goods and labor market since the 1970s can help explain both the large increase in real interest rates up to the mid-1980s and—as globalization forces mature and may even go into reverse, leading to incrementally rising market power—its subsequent and protracted decline accompanied by lower inflation. The analysis has important implications for monetary policy and the optimal pace of normalization.
    Date: 2019–05–06
  15. By: Ruchir Agarwal; Miles Kimball
    Abstract: The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.
    Date: 2019–04–29
    Abstract: This research uses annual time series data on inflation rates in the Kingdom of Eswatini from 1966 to 2017, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the H series is I (1). The study presents the ARIMA (0, 1, 1) model for predicting inflation in the Kingdom of Eswatini. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting inflation in the Kingdom of Eswatini. The results of the study apparently show that inflation in the Kingdom of Eswatini is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in the Kingdom of Eswatini.
    Keywords: Eswatini; forecasting; inflation
    JEL: C53 E31 E37 E47
    Date: 2019–05–06
  17. By: Manaa, Mehdi; Chimienti, Maria Teresa; Adachi, Mitsutoshi; Athanassiou, Phoebus; Balteanu, Irina; Calza, Alessandro; Devaney, Conall; Diaz Fernandez, Ester; Eser, Fabian; Ganoulis, Ioannis; Laot, Maxime; Philipp, Günther; Poignet, Raphael; Sauer, Stephan; Schneeberger, Doris; Stracca, Livio; Tapking, Jens; Toolin, Colm; Tyler, Carolyn; Wacket, Helmut
    Abstract: This paper summarises the outcomes of the analysis of the ECB Crypto-Assets Task Force. First, it proposes a characterisation of crypto-assets in the absence of a common definition and as a basis for the consistent analysis of this phenomenon. Second, it analyses recent developments in the crypto-assets market and unfolding links with financial markets and the economy. Finally, it assesses the potential impact of crypto-assets on monetary policy, payments and market infrastructures, and financial stability. The analysis shows that, in the current market, crypto-assets’ risks or potential implications are limited and/or manageable on the basis of the existing regulatory and oversight frameworks. However, this assessment is subject to change and should not prevent the ECB from continuing to monitor crypto-assets, raise awareness and develop preparedness. JEL Classification: E42, G21, G23, O33
    Keywords: characterisation, crypto-assets, crypto-assets risks, monitoring
    Date: 2019–05
  18. By: Yaya, OlaOluwa S; Ogbonna, Ahamuefula; Atoi, Ngozi V
    Abstract: We re-investigate the hypothesis of inflation stationarity in 33 Organization of Economic Cooperation and Development (OECD) member countries from 2011 to 2018. We compare two linear fractional-based, two nonlinear Fourier-based and two nonlinear Fourier-Fractional-based unit root tests with five classical unit root tests. Classical unit root tests are biased to the hypothesis of unit root since they do not account for structural breaks and nonlinearities. Incorporating just the Fourier framework into the ADF test does not significantly improve the conventional ADF unit root test. More importantly, we find that accounting for the observed limitations of the classical unit root tests improves the power of test. The rejection ability of the examined unit root tests are greatly enhanced whenever inherent salient features (nonlinearity and fractional integration) are combined with structural breaks. The battery of enhanced unit root tests confirmed the Norwegian inflation rate as the only nonstationary series among the thirty three considered. More than half of the OECD member countries have inflation rates that are somewhat stationary within the investigated period. Robustness check indicated the superiority of test regression with Fourier nonlinearity and break over the classical ADF regression.
    Keywords: Fourier function; Inflation rates; Nonlinearity; OECD countries; Unit root test
    JEL: C2 C22
    Date: 2019–02
  19. By: Harold M. Hastings; Tai Young-Taft; Thomas Wang
    Abstract: Increases in the federal funds rate aimed at stabilizing the economy have inevitably been followed by recessions. Recently, peaks in the federal funds rate have occurred 6-16 months before the start of recessions; reductions in interest rates apparently occurred too late to prevent those recessions. Potential leading indicators include measures of labor productivity, labor utilization, and demand, all of which influence stock market conditions, the return to capital, and changes in the federal funds rate, among many others. We investigate the dynamics of the spread between the 10-year Treasury rate and the federal funds rate in order to better understand "when to ease off the (federal funds) brakes.""
    Keywords: Federal Funds Rate; Yield Curve; Monetary Policy; Nonlinear Dynamics; Takens' Embedding
    JEL: C40 C60 E17 E42 E52
    Date: 2019–05
    Abstract: The debate on the nexus between economic growth and inflation is generally inconclusive and yet inevitably interesting. This study makes a contribution to the existing debate by empirically investigating the relationship between inflation and economic growth in the context of Zimbabwe. Using time series data spanning from 1960 up to 2017, the study employs the Engle – Granger Two Step modeling technique in order to analyze the relationship between inflation and economic growth in Zimbabwe. Our findings indicate that there is a negative and statistically significant relationship between inflation and economic growth both in the short – run and long – run. The speed of adjustment to equilibrium is approximately 62% annually when the variables wander away from their equilibrium values. Amongst other policy prescriptions, the study recommends inflation targeting policy in order to stimulate growth while maintaining price stability in Zimbabwe.
    Keywords: Cointegration; economic growth; Error Correction Mechanism (ECM); inflation; Zimbabwe
    JEL: E31 E37
    Date: 2019–05–08
    Abstract: This research uses annual time series data on inflation rates in Rwanda from 1967 to 2017, to model and forecast inflation over the next decade using ARMA models. Diagnostic tests indicate that W is I(0). The study presents the ARMA (3, 0, 0) model [which is nothing but an AR (3) model]. The diagnostic tests further imply that the presented optimal ARMA (3, 0, 0) model is stable and acceptable. The results of the study apparently show that W will be approximately 7.45% by 2020. Policy makers and the business community in Rwanda are expected to take advantage of the anticipated stable inflation rates over the next decade.
    Keywords: Forecasting; inflation; Rwanda
    JEL: C53 E31 E37 E47
    Date: 2019–05–07
  22. By: Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe
    Abstract: We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision announcement and the window that contains the press conference. We also show that the QE-related policy factor has been dominant in the recent period and that Forward Guidance and QE effects have been very persistent on the longer-end of the yield curve. We further show that broad and banking stock indices’ responses to monetary policy surprises depended on the perceived nature of the surprises. We find no evidence of asymmetric responses of financial markets to positive and negative surprises, in contrast to the literature on asymmetric real effects of monetary policy. Lastly, we show how to implement our methodology for any policy-related news release, such as policymaker speeches. To carry out the analysis, we construct the Euro Area Monetary Policy Event-Study Database (EA-MPD). This database, which contains intraday asset price changes around the policy decision announcement as well as around the press conference, is a contribution on its own right and we expect it to be the standard in monetary policy research for the euro area. JEL Classification: E43, E44, E52, E58, G12, G14
    Keywords: asymmetry, ECB policy surprise, event-study, intraday, persistence
    Date: 2019–05
  23. By: Luchelle Soobyah; Daan Steenkamp
    Abstract: This paper investigates the impact of rand shocks on industry output and various other South African macroeconomic variables. We use a factor augmented model, which has the key advantage of providing a rich narrative about the disaggregated impacts of exchange rate shocks. We show that the currency tends to react to changes in the relative fundamentals of the economy, such as those captured by commodity export prices, and that the independent impact on the economy of exchange rate changes that are unrelated to fundamentals is estimated to be small. The results suggest that the exchange rate tends to act as a shock absorber to the shocks that hit the economy; a large proportion of the variation in the rand can be explained by other shocks, while rand shocks themselves explain a relatively small proportion of South Africa’s macroeconomic volatility. That said, the role that the exchange rate plays as a shock absorber appears to be weaker in South Africa than for other commodity exporters like Australia and New Zealand.
    Date: 2019–05–20
    Abstract: This research uses annual time series data on inflation rates in The Gambia from 1962 to 2016, to model and forecast inflation using ARMA models. Diagnostic tests indicate that G is I(0). The study presents the ARMA (1, 0, 0) model [which is nothing but an AR (1) model]. The diagnostic tests further imply that the presented optimal ARMA (1, 0, 0) model is stable and indeed acceptable. The results of the study apparently show that G will be approximately 7.88% by 2020. Policy makers and the business community in The Gambia are expected to take advantage of the anticipated stable inflation rates over the next decade.
    Keywords: Forecasting; inflation; The Gambia
    JEL: C53 E31 E37 E47
    Date: 2019–05–06
  25. By: Michel Aglietta; Virginie Coudert
    Abstract: Drastic changes in US politics relative to international agreements and to bilateral relationships with China raise a political question about the key currency status of the dollar and a theoretical question in international monetary economics: Can a key currency system be maintained if the issuing country deliberately engages in conflicting protectionist policy? This policy brief investigates how the positions of major currencies have been changing in the international monetary system for several years. The key currency relies on the acceptance of the issuing country as a benevolent hegemon that delivers an economic policy conducive to international financial stability. Until recently, it appeared that, despite the relative shrinking of the US weight in the world economy, the dollar had maintained its dominance both in international payments and in official reserves. However, uncertainty in US policy is disrupting risk perception in heavily dollar-indebted emerging and developing countries. Besides, denying the services of international transactions for non-US-resident firms with countries under US embargo is a serious encroachment on the key currency system. In the long run, the forces that can transform the international monetary system (IMS) stem from the transformation of the growth regime under environmental constraints. Since its genesis in the industrial revolution, the key currency has been the currency of the country dominating the primary energy resource, e.g. the commodity most traded worldwide. The pound sterling was linked with UK dominance in coal, the dollar with US dominance in oil. The irremediable shift to renewables, required to moderate climate change, will shift the growth regime to dispersed sources of renewable energy. The developing countries have inadequate financial resources to undertake the needy investments. Second, the positions of countries in terms of energy dependence will be reshuffled. A multilateral financial system, mixing public and private financial institutions, will require the cooperation of major countries to channel saving from all parts of the world to finance those investments. Here we argue that a multilateral monetary system would be more adapted to these challenges than the present one. It would fulfill the basic functions of international money in providing an ultimate reserve asset that will be the debt of no country, an SDR-based IMS. The last section of the paper explains the transition from dollar to SDR reserve.
    Keywords: Key Currency;Multilateral System;SDRs (Special Drawing Rights)
    JEL: F33 F36
    Date: 2019–05
  26. By: Jose L. Fillat (Federal Reserve Bank of Boston); Stefania Garetto (Boston University, CEPR, and NBER); Arthur V. Smith (Boston University)
    Abstract: The global financial crisis of 2008 was followed by a wave of regulatory reforms that affected large banks, especially those with a global presence. These reforms were reactive to the crisis. In this paper we propose a structural model of global banking that can be used proactively to perform counterfactual analysis on the effects of alternative regulatory policies. The structure of the model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. When calibrated to match moments from a sample of European banks, the model is able to replicate the response of the US banking sector to the European sovereign debt crisis. Our counterfactual analysis suggests that pervasive subsidiarization, higher capital requirements, or ad hoc monetary policy interventions would have mitigated the effects of the crisis on US lending.
    Keywords: global banks, banking regulation, shock transmission.
    JEL: F12 F23 F36 G21
    Date: 2018–07
  27. By: Dobronravova, Elizaveta (Добронравова, Елизавета) (The Russian Presidential Academy of National Economy and Public Administration); Perevyshin, Yuriy (Перевышин, Юрий) (The Russian Presidential Academy of National Economy and Public Administration); Shemyakina, Kira (Шемякина, Кира) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: We examined the implementation of the law of one price in Russian regions, highlighted the factors affecting the differences in regional price levels and identified the causes of inflation differentiation across different regions. We also defined threshold of regional prices, which triggers market forces, causing the alignment of regional prices. The study shows that the law of one price in Russian regions fails for most goods.
    Date: 2019–04
  28. By: Korishchenko, Konstantin (Корищенко, Константин) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: During the last 5-10 years, the topic of digitalization of the economy has gained increasing importance. One of the directions of this process is the issue and circulation of “cryptocurrency”, which was initiated in the framework of the project for the production of bitcoins. Currently, there are more than 1,500 cryptocurrencies in circulation, when assessing their total capitalization at the beginning of 2018 over $ 500 billion. Central banks and other government agencies are actively working to create a regulatory among new financial assets that claim to function as money . One of the pressing issues is the attitude of central banks to the issue of their own cryptocurrencies and possible mechanisms for the implementation of such projects.
    Date: 2019–04

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