nep-mon New Economics Papers
on Monetary Economics
Issue of 2019‒12‒23
twelve papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Monetary policy shocks and peer-to-peer lending in China By Funke, Michael; Li, Xiang; Tsang, Andrew
  2. SVARs, the central bank balance sheet and the effects of unconventional monetary policy in the euro area By Adam Elbourne
  3. Nonbanks, banks, and monetary policy: U.S. loan-level evidence since the 1990s By David Elliott; Ralf R. Meisenzahl; José-Luis Peydró; B.C. Turner
  4. Firms’ expectations on the availability of credit since the financial crisis By Ferrando, Annalisa; Ganoulis, Ioannis; Preuss, Carsten
  5. Examining macroprudential policy and its macroeconomic effects - some new evidence By Soyoung Kim; Aaron Mehrotra
  6. How Much Information Do Monetary Policy Committees Disclose? Evidence from the FOMC's Minutes and Transcripts By Apel, Mikael; Blix Grimaldi, Marianna; Hull, Isaiah
  7. In the face of spillovers: prudential policies in emerging economies By Coman, Andra; Lloyd, Simon P.
  8. Are Central Banks' Research Teams Fragile Because of Groupthink? By Jakub Rybacki
  9. Designing Central Bank Digital Currencies By Itai Agur; Anil Ari; Giovanni Dell'Ariccia
  10. Forward guidance: communication, commitment, or both? By Marco Bassetto
  11. Private Bank Money vs Central Bank Money: A Historical Lesson for CBDC Introduction By Grodecka-Messi, Anna
  12. Money as a social relation beyond the state: a contribution to the institutionalist approach based on the Argentinian trueque By Hadrien Saiag

  1. By: Funke, Michael; Li, Xiang; Tsang, Andrew
    Abstract: This paper studies monetary policy transmission in China’s peer-to-peer lending market. Using spectral measures of causality, we explore the impacts of Chinese monetary policy shocks on China’s P2P market interest rates and lending amounts. The estimation results indicate significant spectral Granger causality from monetary policy surprises to P2P lending rates for borrowers, but not the reverse. Unlike the lending channel for traditional banks, monetary policy shocks do not Granger-cause the credit amount in the P2P lending market.
    JEL: E52 E43 G23 C22
    Date: 2019–12–05
  2. By: Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This discussion paper presents further evidence that the most important published estimates of the effects of unconventional monetary policy are not reliable. It is a further elaboration of the ideas in the CPB discussion paper "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". Previous empirical studies seem to show that the unconventional monetary policy of the ECB, also known as balance sheet policy, has a positive effect on growth and inflation. However, this conclusion is unfounded, because institutional features of monetary policy in the euro area make it impossible to identify unexpectedly exogenous variation in monetary policy. Read CPB Discussion Paper 391 "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?" . VAR modeling shows the effects of unexpected exogenous variation in monetary policy, also known as policy shocks. This discussion paper presents a number of reasons why the existing literature is unable to isolate unexpected variation in monetary policy.
    JEL: C32 E52
    Date: 2019–12
  3. By: David Elliott; Ralf R. Meisenzahl; José-Luis Peydró; B.C. Turner
    Abstract: We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy affects the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.
    Keywords: Negative rates, non-standard monetary policy, reach-for-yield, securities, banks.
    JEL: E51 E52 G21 G23 G28
    Date: 2019–03
  4. By: Ferrando, Annalisa; Ganoulis, Ioannis; Preuss, Carsten
    Abstract: Using a large set of firm-level survey data from the euro area since 2009, we analyse how firms use their information to form expectations on the availability of bank finance. Our results suggest that firms update what otherwise look like adaptive expectations on the basis of the latest information in their information set. As in the previous literature, the hypothesis that expectations fulfil the (orthogonality) conditions of the rational expectations hypothesis is rejected by the data. We find evidence that this is not only due to information imperfections but also to some type of misspecification of the expectations’ model that firms are using. In addition, we find some evidence that companies that have not used bank finance recently tend to do worse at forecasting its availability next period. To test how policy announcements may affect expectations, we concentrate on the possible effects of the ECB policy announcements of summer 2012, which included among other things the announcement of the European Central Bank’s Outright Monetary Transactions Program (OMT). Using a difference-in-differences approach, we find evidence of forward-looking expectations. In particular, shortly after the OMT announcement the forecast of “informed” firms were more upbeat compared to the control group of firms. This moreover was true in both vulnerable and non-vulnerable countries, suggesting that it was the relevance of the information about the future of the banking system that most mattered for expectations at the time, more than the immediate impact of the announced policy measures. JEL Classification: C83, D22, D84
    Keywords: expectation formation, policy announcements and survey data
    Date: 2019–12
  5. By: Soyoung Kim; Aaron Mehrotra
    Abstract: In this paper, we provide empirical evidence about the broader macroeconomic effects of macroprudential policies and the underlying transmission mechanism, as well as the response of macroprudential policy to financial risks. To this end, we use structural panel vector autoregressions and a dataset covering 32 advanced and emerging economies. We show that macroprudential policy shocks have effects on real GDP, the price level and credit that are very similar to those of monetary policy shocks, but the detailed transmission of the two policies is different. Whereas macroprudential policy shocks mostly affect residential investment and household credit, monetary policy shocks have more widespread effects on the economy. Moreover, while positive credit shocks are generally met with tighter macroprudential policy, macro-financial country characteristics such as the exchange rate regime and the level of financial development affect the policy response.
    Keywords: macroprudential policy, monetary policy, credit, macroeconomic effect, macroprudential policy response
    JEL: E58 E61 G28
    Date: 2019–12
  6. By: Apel, Mikael (Monetary Policy Department, Central Bank of Sweden); Blix Grimaldi, Marianna (Swedish National Debt Office); Hull, Isaiah (Research Department, Central Bank of Sweden)
    Abstract: The purpose of central bank minutes is to give an account of monetary policy meeting discussions to outside observers, thereby enabling them to draw informed conclusions about future policy. However, minutes are by necessity a shortened and edited representation of a broader discussion. Consequently, they may omit information that is predictive of future policy decisions. To investigate this, we compare the information content of the FOMC's minutes and transcripts, focusing on three dimensions which are likely to be excluded from the minutes: 1) the committee's degree of hawkishness; 2) the chairperson's degree of hawkishness; and 3) the level of agreement between committee members. We measure committee and chairperson hawkishness with a novel dictionary that is constructed using the FOMC's minutes and transcripts. We measure agreement by performing deep transfer learning, a technique that involves training a deep learning model on one set of documents - U.S. congressional debates - and then making predictions on another: FOMC transcripts. Our findings suggest that transcripts are more informative than minutes and heightened committee agreement typically precedes policy rate increases.
    Keywords: Central Bank Communication; Monetary Policy; Machine Learning
    JEL: D71 D83 E52 E58
    Date: 2019–11–01
  7. By: Coman, Andra; Lloyd, Simon P.
    Abstract: We examine whether emerging market prudential policies help to reduce the macrofinancial spillover effects of US monetary policy. We find that emerging markets with tighter prudential policies face significantly smaller, and less negative, spillovers to total credit from US monetary policy tightening shocks. Loan-to-value ratio limits and reserve requirements appear to be particularly effective prudential measures at mitigating the spillover effects of US monetary policy. Our findings indicate that domestic prudential policies can dampen emerging markets’ exposure to US monetary policy and the associated global financial cycle, even when accounting for capital controls, suggesting they may be a useful tool in the face of international macroeconomic policy trade-offs. JEL Classification: E52, E58, E61, F44
    Keywords: international spillovers, local projections, monetary policy, policy interactions, prudential policy
    Date: 2019–12
  8. By: Jakub Rybacki
    Abstract: In the recent years, the great majority of central banks have globally failed to realize inflation targets. We attempt to answer a question of whether such failure resulted from insufficient organization of economic research in those institutions. Our study shows a positive, but statistically weak, relationship between these issues. However, the analysis finds also a few adverse irregularities in major central banks' research organizations. The research of the European Central Bank, Bundesbank, and the Bank of England are relatively less diversified compared to the U.S. Federal Reserve. In the cases of Poland and Italy, economic departments are dominated by groups of researchers focused on narrow topics. On the other hand, the organization of research departments in France and Canada support a greater variety of topics and independence of researchers.
    Keywords: groupthink, network analysis, central banks, big data
    JEL: E58 D02 I23
    Date: 2019–12
  9. By: Itai Agur; Anil Ari; Giovanni Dell'Ariccia
    Abstract: We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.
    Date: 2019–11–18
  10. By: Marco Bassetto (Institute for Fiscal Studies and Federal Reserve Bank of Minneapolis)
    Abstract: A policy of forward guidance has been suggested either as a form of commitment (“Odyssean”) or as a way of conveying information to the public (“Delphic”). I analyze the strategic interaction between households and the central bank as a game in which the central bank can send messages to the public independently of its actions. In the absence of private information, the set of equilibrium payo?s is independent of the announcements of the central bank: forward guidance as a pure commitment mechanism is a redundant policy instrument. When private information is present, central bank communication can instead have social value. Forward guidance emerges as a natural communication strategy when the private information in the hands of the central bank concerns its own preferences or beliefs: while forward guidance per se is not a substitute for the central bank’s commitment or credibility, it is an instrument that allows policymakers to leverage their credibility to convey valuable information about their future policy plans. It is in this context that “Odyssean forward guidance” can be understood.
    Date: 2019–07–29
  11. By: Grodecka-Messi, Anna (Department of Economics, Lund University)
    Abstract: In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, I show that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. The effect on lending is either non-significant or ambiguous. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money - central bank digital currencies - and their potential impacts on commercial banks.
    Keywords: Banknote Monopoly; Banknote Issuance; Cash; Central Bank Digital Currencies; Double Liability; Canadian banks; Financial Stability; Bank of Canada
    JEL: E42 E50 G21 G28 N22
    Date: 2019–12–16
  12. By: Hadrien Saiag (IIAC - Institut interdisciplinaire d'anthropologie du contemporain - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper provides a contribution to the institutionalist approach to money through ethnographic research carried out in two local currency systems in Argentina (known as trueque). It argues that Argentinian local currencies must be considered as monies in their own right even if they differ from state and bank issued currencies, because they can be understood as systems of evaluation and settlement of debts denominated in a specific unit of account (the crédito). Money is said to be an ambivalent social relation because in the two cases studied it mediates very different dynamics, exacerbating inequality in one context and promoting collective emancipation in another. This difference is due to the kind of political communities that the crédito tends to forge. In both Rosario and Poriajhu, the political community is defined by a set of values that legitimizes ongoing monetary practices and institutions rather the State's coercion.
    Keywords: money,debt,institutionalist approach,money plurality,Argentina
    Date: 2019

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