nep-mon New Economics Papers
on Monetary Economics
Issue of 2020‒06‒29
thirty-one papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The credibility of the ECB's inflation target in times of Corona: New evidence from an online survey By Coleman, Winnie; Nautz, Dieter
  2. On the stability of euro area money demand and its implications for monetary policy By Barigozzi, Matteo
  3. Bank Lending, Monetary Policy Transmission, and Interest on Excess Reserves: a FAVAR Analysis By Chetan Dave; Scott J. Dressler; Lei Zhang
  4. The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? By Bergin, Paul R; Corsetti, Giancarlo
  5. Monetary Policy with Opinionated Markets By Ricardo J. Caballero; Alp Simsek
  6. The Open-Economy ELB: Contractionary Monetary Easing and the Trilemma By Cavallino, Paolo; Sandri, Damiano
  7. Inflation Expectations in Times of COVID-19 By Olivier Armantier; Gizem Koşar; Rachel Pomerantz; Daphne Skandalis; Kyle Smith; Giorgio Topa; Wilbert Van der Klaauw
  8. Security of a CBDC By Cyrus Minwalla
  9. Digital Currency and the Economic Crisis: Helping States Respond By Geoffrey Goodell; Hazem Danny Al-Nakib; Paolo Tasca
  10. The Long Run Stability of Money in the Proposed East African Monetary Union By Simplice A. Asongu; Oludele E. Folarin; Nicholas Biekpe
  11. Monetary Policy and Income Inequality in the United States: The Role of Labor Unions By Kilman, Josefin
  12. The Economics of the Fed Put By Cieslak, Anna; Vissing-Jørgensen, Annette
  13. Monetary policy and asset price bubbles: a laboratory experiment By Jordi Galí; Giovanni Giusti; Charles N. Noussair
  14. Designing a CBDC for universal access By John Miedema; Cyrus Minwalla; Martine Warren; Dinesh Shah
  15. Central bank independence and systemic risk By Andrieș, Alin Marius; Podpiera, Anca Maria; Sprincean, Nicu
  16. Coronavirus: Case for Digital Money? By Zura Kakushadze; Jim Kyung-Soo Liew
  17. The Fiscal Theory of the Price Level with a Bubble By Brunnermeier, Markus K; Merkel, Sebastian; Sannikov, Yuliy
  18. The costs of macroprudential deleveraging in a liquidity trap By Chen, Jiaqian; Finocchiaro, Daria; Lindé, Jesper; Walentin, Karl
  19. Reserve Requirements and Bubbles By ASAOKA Shintaro
  20. Privacy in CBDC technology By Sriram Darbha; Rakesh Arora
  21. Blowing against the Wind? A Narrative Approach to Central Bank Foreign Exchange Intervention By Alain Naef
  22. Interest Rate Uncertainty as a Policy Tool By Ghironi, Fabio; Ozhan, Galip Kemal
  23. Oil price assumptions for macroeconomic policy By Degiannakis, Stavros; Filis, George
  24. The Primary Dealer Credit Facility By Antoine Martin; Susan McLaughlin
  25. The Bond Lending Channel of Monetary Policy By Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander
  26. Cryptocurrency market reactions to regulatory news By Auer, Raphael; Claessens, Stijn
  27. Inflation Dynamics of Financial Shocks By Olli Palm\'en
  28. The Federal Reserve's Dollar Swap Lines and the European Central Bank during the global financial crisis of 2007-2009 By Emmanuel Carré; Laurent Le Maux
  29. An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies By Jonathan S. Hartley; Alessandro Rebucci
  30. Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows By Ozge Akinci; Gianluca Benigno; Albert Queraltó
  31. The Commercial Paper Funding Facility By Nina Boyarchenko; Richard K. Crump; Anna Kovner

  1. By: Coleman, Winnie; Nautz, Dieter
    Abstract: Evidence on the credibility of a central bank's inflation target typically refers to the anchoring of survey-based measures of inflation expectations. However, both the survey question and the anchoring criteria are only loosely connected to the actual inflation target used in monetary policy practice. By using the exact wording of the ECB's definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure the time-varying credibility of the inflation target. Our results indicate that credibility has significantly decreased in our sample period, particularly in the course of the coronavirus pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term.
    Keywords: Credibility of Inflation Targets,Household Inflation Expectations,Online Surveys,Coronavirus pandemic
    JEL: E31 E52 E58
    Date: 2020
  2. By: Barigozzi, Matteo
    Abstract: On the Stability of Euro Area Money Demandand its Implications for Monetary PolicyFebruary 27, 2018AbstractWe employ a recent time-varying cointegration test to revisit the usefulness of long-runmoney demand equations for the ECB, addressing the issue of their instability by meansof a model evaluation exercise. Building on the results, we make a twofold contribution.First, we propose a novel stable money demand equation relying on two crucial factors:a speculative motive, represented by domestic and foreign price-earnings ratios, and aprecautionary motive, measured by changes in unemployment. Second, we use the modelto derive relevant policy implications for the ECB, since excess liquidity looks more usefulfor forecasting stock market busts than future inflation. Overall, this evidence pointsto (i) a possible evolution of the monetary pillar in the direction of pursuing financialstability and (ii) the exclusion of a sudden liquidity–driven inflationary burst after theexit from the prolonged period of unconventional monetary measures.
    Keywords: money demand; time-varying cointegration; monetary policy; financial stabil-ity; price stability
    JEL: C32 E41 E52
    Date: 2018–08–01
  3. By: Chetan Dave (Department of Economics, University of Alberta); Scott J. Dressler (Department of Economics, Villanova School of Business, Villanova University); Lei Zhang (Department of Agribusiness and Applied Economics, North Dakota State University)
    Abstract: Has paying interest on excess reserves (IOER) impacted monetary policy transmission? We employ a factor-augmented VAR (i.e. FAVAR) to analyze a traditional bank lending channel (BLC) as well as a potential reserves channel. Our main results are: (i) the bank-lending response to an exogenous monetary policy innovation in the Federal Funds rate (i.e. the BLC) remains active but smaller than pre-2008 measures; (ii) the bank-lending response to any IOER-based liquidity innovations (i.e. the reserves channel) either mimics the BLC or is largely insignificant. These results provide little evidence that IOER has significantly impacted bank lending or monetary transmission.
    Keywords: Bank Lending Channel; FAVAR; IOER; Monetary Policy
    JEL: E51 E52 C32
    Date: 2020–05
  4. By: Bergin, Paul R; Corsetti, Giancarlo
    Abstract: In the wake of Brexit and the Trump tariff war, central banks have had to reconsider the role of monetary policy in managing the economic effects of tariff shocks, which may induce a slowdown while raising inflation. This paper studies the optimal monetary policy responses using a New Keynesian model that includes elements from the trade literature, including global value chains in production, firm dynamics, and comparative advantage between two traded sectors. We find that, in response to a symmetric tariff war, the optimal policy response is generally expansionary: central banks stabilize the output gap at the expense of further aggravating short-run inflation---contrary to the prescription of the standard Taylor rule. In response to a tariff imposed unilaterally by a trading partner, it is optimal to engineer currency depreciation up to offsetting the effects of tariffs on relative prices, without completely redressing the effects of the tariff on the broader set of macroeconomic aggregates.
    Keywords: comparative advantage; Optimal monetary policy; production chains; tariff shock; tariff war
    JEL: F4
    Date: 2020–04
  5. By: Ricardo J. Caballero; Alp Simsek
    Abstract: Central banks (the Fed) and markets (the market) often disagree about the path of interest rates. We develop a model that explains this disagreement and study its implications for monetary policy and asset prices. We assume that the Fed and the market disagree about expected aggregate demand. Moreover, agents learn from data but not from each other---they are opinionated and information is fully symmetric. We then show that disagreements about future demand, together with learning, translate into disagreements about future interest rates. Moreover, these disagreements shape optimal monetary policy, especially when they are entrenched. The market perceives monetary policy "mistakes" and the Fed partially accommodates the market's view to mitigate the financial market fallout from perceived "mistakes." We also show that differences in the speed at which the Fed and the market react to the data---heterogeneous data sensitivity---matters for asset prices and interest rates. With heterogeneous data sensitivity, every macroeconomic shock has an embedded monetary policy "mistake" shock. When the Fed is more (less) data sensitive, the anticipation of these mistakes dampen (amplify) the impact of macroeconomic shocks on asset prices.
    JEL: E00 E12 E21 E32 E43 E44 G11 G12
    Date: 2020–06
  6. By: Cavallino, Paolo; Sandri, Damiano
    Abstract: Contrary to the trilemma, we show that international financial integration can undermine the transmission of monetary policy even in countries with flexible exchange rates due to an open-economy Effective Lower Bound. The ELB is an interest rate threshold below which monetary easing becomes contractionary due to the interaction between capital flows and collateral constraints. A tightening in global monetary and financial conditions increases the ELB and may prompt central banks to hike rates despite output contracting. We also show that the ELB gives rise to a novel inter-temporal trade-off for monetary policy and calls for supporting monetary policy with additional policy tools.
    Keywords: carry trade; Collateral constraints; Currency mismatches; monetary policy; Spillovers
    JEL: E5 F3 F42
    Date: 2020–04
  7. By: Olivier Armantier; Gizem Koşar; Rachel Pomerantz; Daphne Skandalis; Kyle Smith; Giorgio Topa; Wilbert Van der Klaauw
    Abstract: As an important driver of the inflation process, inflation expectations must be monitored closely by policymakers to ensure they remain consistent with long-term monetary policy objectives. In particular, if inflation expectations start drifting away from the central bank’s objective, they could become permanently “un-anchored” in the long run. Because the COVID-19 pandemic is a crisis unlike any other, its impact on short- and medium-term inflation has been challenging to predict. In this post, we summarize the results of our forthcoming paper that makes use of the Survey of Consumer Expectations (SCE) to study how the COVID-19 outbreak has affected the public’s inflation expectations. We find that, so far, households’ inflation expectations have not exhibited a consistent upward or downward trend since the emergence of the COVID-19 pandemic. However, the data reveal unprecedented increases in individual uncertainty—and disagreement across respondents—about future inflation outcomes. Close monitoring of these measures is warranted because elevated levels may signal a risk of inflation expectations becoming unanchored.
    Keywords: inflation expectations; COVID-19
    JEL: E52 E31
    Date: 2020–05–13
  8. By: Cyrus Minwalla
    Abstract: Security is an important element in ensuring public confidence in a central bank digital currency (CBDC). This note highlights the required security properties of a CBDC system and the challenges encountered with existing solutions, should the Bank of Canada choose to issue one.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E4 E42 E5 E51 O3 O31
    Date: 2020–06
  9. By: Geoffrey Goodell; Hazem Danny Al-Nakib; Paolo Tasca
    Abstract: The current crisis, at the time of writing, has had a profound impact on the financial world, introducing the need for creative approaches to revitalising the economy at the micro level as well as the macro level. In this informal analysis and design proposal, we describe how infrastructure for digital assets can serve as a useful monetary and fiscal policy tool and an enabler of existing tools in the future, particularly during crises, while aligning the trajectory of financial technology innovation toward a brighter future. We propose an approach to digital currency that would allow people without banking relationships to transact electronically and privately, including both internet purchases and point-of-sale purchases that are required to be cashless. We also propose an approach to digital currency that would allow for more efficient and transparent clearing and settlement, implementation of monetary and fiscal policy, and management of systemic risk. The digital currency could be implemented as central bank digital currency (CBDC), or it could be issued by the government and collateralised by public funds or Treasury assets. Our proposed architecture allows both manifestations and would be operated by banks and other money services businesses, operating within a framework overseen by government regulators. We argue that now is the time for action to undertake development of such a system, not only because of the current crisis but also in anticipation of future crises resulting from geopolitical risks, the continued globalisation of the digital economy, and the changing value and risks that technology brings.
    Date: 2020–06
  10. By: Simplice A. Asongu (Yaounde, Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa)
    Abstract: This study investigates the stability of money in the proposed East African Monetary Union (EAMU). The study uses annual data for the period 1981 to 2015 from five countries making up the East African Community (EAC). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries. This divergence is articulated in terms of differences in CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long term determinants and error correction in event of a shock. Specifically, the results show that the demand for money is stable in the cases of Burundi, Rwanda and Tanzania based on the CUSUM and CUSUMSQ tests, while for the remaining countries (Kenya and Uganda) only partial stability is apparent. In event of a shock, Kenya will restore its long run equilibrium fastest, followed by Tanzania and Burundi.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22 O55
    Date: 2020–01
  11. By: Kilman, Josefin (Department of Economics, Lund University)
    Abstract: There is a growing literature investigating if and how monetary policy impacts income inequality. Labor unions are generally found to mitigate income inequality and a recent literature highlight that changing labor market structures, such as deunionization, may be important for monetary policy. This paper tests whether labor unions influence the impact of monetary shocks on income inequality in the United States over the period 1970-2008, and the channels this effect runs through. It is the first paper to identify variation in unionization rates as a moderator to the impact of monetary policy on income inequality. I measure income inequality and unionization on the state level and can therefore exploit that unionization rates vary both within and across states while monetary shocks are common to all states. The main finding is that contractionary monetary shocks increase income inequality, but the impact is weaker with a higher union density. A one percentage point monetary shock increases the Gini coefficient with 5.4 % when union density is 5 %, while it increases Gini with 1.7 % when union density is 15 %. I find evidence that both wages and employment are two channels explaining how unions mitigate the monetary policy - income inequality relationship. The findings of the channels suggest that unions make the adjustment to monetary shocks more even across workers, rather than mitigating the aggregate effect of the shocks. This suggests that the structure of the labor market impacts the relationship between monetary policy and income inequality.
    Keywords: Monetary policy; income inequality; labor unions
    JEL: D31 E24 E52 J51
    Date: 2020–06–06
  12. By: Cieslak, Anna; Vissing-Jørgensen, Annette
    Abstract: Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed's growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.
    Keywords: Fed put; monetary policy; Stock market; Taylor rules; textual analysis
    JEL: E44 E52 E58
    Date: 2020–04
  13. By: Jordi Galí; Giovanni Giusti; Charles N. Noussair
    Abstract: Advocates of a Leaning-Against-the-Wind monetary policy have claimed that such a policy can moderate asset price bubbles. On the other hand, there are compelling theoretical arguments that the policy would have the opposite effect. We study the effect of monetary policy on asset prices in a laboratory experiment with an overlapping generations structure. Participants in the role of the young generation allocate their endowment between two investments: a risky asset and a one-period riskless bond. The risky asset pays no dividend and thus capital gains are its only source of value. Consequently, its price is a pure bubble. We study how variations in the interest rate affect the evolution of the bubble in an experiment with three treatments. One treatment has a fixed low interest rate, another a fixed high interest rate, and the third has a Leaning-Againstthe-Wind interest rate policy in effect. We observe that the bubble increases (decreases) when interest rates are lower (higher) in the period of a policy change. However, the opposite effect is observed in the following period, when higher (lower) interest rates are associated with greater (smaller) bubble growth. Direct measurement of expectations reveals a Trend-Following component.
    Date: 2020–05
  14. By: John Miedema; Cyrus Minwalla; Martine Warren; Dinesh Shah
    Abstract: If the Bank of Canada issues a central bank digital currency, the technology should be designed for universal access.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E4 E41 O3 O31
    Date: 2020–06
  15. By: Andrieș, Alin Marius; Podpiera, Anca Maria; Sprincean, Nicu
    Abstract: We investigate the relationship of central bank independence and banks’ systemic risk measures. Our results support the case for central bank independence, revealing that central bank independence has a robust, negative, and significant impact on the contribution and exposure of a bank to systemic risk. Moreover, the impact of central bank independence is similar for the stand-alone risk of individual banks. Secondarily, we study how the central bank independence affects the impact of selected country and banking system indicators on these systemic measures. The results show that central bank independence may exacerbate the effect of a crisis on the contribution of banks to systemic risk. However, central bank independence seems to mitigate the harmful effect of a bank’s high market power on its systemic risk contribution.
    JEL: G21 E58 G28
    Date: 2020–06–16
  16. By: Zura Kakushadze; Jim Kyung-Soo Liew
    Abstract: We discuss the pros of adopting government-issued digital currencies as well as a supranational digital iCurrency. One such pro is to get rid of paper money (and coinage), a ubiquitous medium for spreading germs, as highlighted by the recent coronavirus outbreak. We set forth three policy recommendations for adapting mobile devices as new digital wallets, regulatory oversight of sovereign digital currencies and user data protection, and a supranational digital iCurrency for facilitating international digital monetary linkages.
    Date: 2020–05
  17. By: Brunnermeier, Markus K; Merkel, Sebastian; Sannikov, Yuliy
    Abstract: This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy's growth rate.
    Keywords: Fiscal policy; Monetary Economics
    JEL: E44 E52 E63
    Date: 2020–04
  18. By: Chen, Jiaqian; Finocchiaro, Daria; Lindé, Jesper; Walentin, Karl
    Abstract: We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to a loan-to-income tightening when debt is high and monetary policy cannot accommodate.
    Keywords: Collateral and borrowing constraints; Household Debt; housing prices; Mortgage interest deductibility; New Keynesian Model; zero lower bound
    JEL: E52 E58
    Date: 2020–04
  19. By: ASAOKA Shintaro
    Abstract: This study investigates the effectiveness of the reserve requirement policy as a preventive measure against economic bubbles. In the existing literature, it has been pointed out that the expansion of bubbles can be prevented by raising the required reserve ratio. The present study demonstrates this may not be the case. If the ratio is below a certain threshold, the conventional policy prediction fails or in other words, raising the required reserve ratio expands a bubble. If, in contrast, the ratio is above the threshold, it prevents the expansion of the bubble (or the conventional prediction holds). In either case, a policy of raising the reserve requirement is welfare reducing in our model. This implies that if the ratio is below the threshold, the optimal policy is to cut the required reserve ratio, which will increase welfare while at the same time that it will reduce the bubble.
    Date: 2020–05
  20. By: Sriram Darbha; Rakesh Arora
    Abstract: Privacy is a key aspect of a potential central bank digital currency system. We outline different technical choices to enact various privacy models while complying with the appropriate regulations. We develop a framework to evaluate privacy models and list key risks and trade-offs in privacy design.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E4 E42 E5 E51 O3
    Date: 2020–06
  21. By: Alain Naef (University of California, Berkeley)
    Abstract: Few studies on foreign exchange intervention convincingly address the causal effect of intervention on exchange rates. By using a narrative approach, I address a major issue in the literature: the endogeneity of intraday news which influence the exchange rate alongside central bank operations. Some studies find that interventions work in up to 80% of cases. Yet, by accounting for intraday market moving news, I find that in adverse conditions, the Bank of England managed to influence the exchange rate only in 8% of cases. I use both machine learning and human assessment to confirm the validity of the narrative approach.
    Keywords: intervention, foreign exchange, natural language processing, central bank, Bank of England.
    JEL: F31 E5 N14 N24
    Date: 2020–06
  22. By: Ghironi, Fabio; Ozhan, Galip Kemal
    Abstract: We study a novel policy tool-interest rate uncertainty-that can be used to discourage inefficient capital inflows and to adjust the composition of external accounts between short-term securities and foreign direct investment (FDI). We identify the trade-offs faced in navigating between external balance and price stability. The interest rate uncertainty policy discourages short-term inflows mainly through portfolio risk and precautionary saving channels. A markup channel generates net FDI inflows under imperfect exchange rate pass-through. We further investigate new channels under different assumptions about the irreversibility of FDI, the currency of export invoicing, risk aversion of outside agents, and effective lower bound in the rest of the world. Under every scenario, uncertainty policy is inflationary.
    Keywords: international financial policy; Short-Term and Long-Term Capital Movements; stochastic volatility; Unconventional Monetary Policy
    JEL: E32 F21 F32 F38 G15
    Date: 2020–04
  23. By: Degiannakis, Stavros; Filis, George
    Abstract: Despite the arguments that are put forward by the literature that oil price forecasts are economically useful, such claim has not been tested to date. In this study we evaluate the economic usefulness of oil price forecasts by means of conditional forecasting of three core macroeconomic indicators that policy makers are predicting, using assumptions about the future path of the oil prices. The chosen indicators are the core inflation rate, industrial production and purchasing price index. We further consider two more indicators, namely inflation expectation and monetary policy uncertainty. To do so, we initially forecast oil prices using a MIDAS framework and subsequently we use regression-based models for our conditional forecasts. Overall, there is diminishing importance of oil price forecasts for macroeconomic projections and policy formulation. An array of arguments is presented as to why this might be the case, which relate to the improved energy efficiency, the contemporary monetary policy tools and the financialisation of the oil market. Our findings remain robust to alternative oil price forecasting frameworks.
    Keywords: Conditional forecasting; oil price forecasts; MIDAS; core inflation; inflation expectations
    JEL: C53 E27 E37 Q47
    Date: 2020–05–27
  24. By: Antoine Martin; Susan McLaughlin
    Abstract: On March 17, 2020, the Federal Reserve announced that it would re-establish the Primary Dealer Credit Facility (PDCF) to allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households. The PDCF started offering overnight and term funding with maturities of up to ninety days on March 20. It will be in place for at least six months and may be extended as conditions warrant. In this post, we provide an overview of the PDCF and its usage to date.
    Keywords: primary dealer credit facility (PDCF); Federal Reserve; market functioning; COVID-19
    JEL: E5
    Date: 2020–05–19
  25. By: Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander
    Abstract: The share of firms' borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."
    Keywords: Banking relationships; corporate bonds; Corporate Finance; financial distress; monetary policy
    JEL: E44 E52 G21 G23
    Date: 2020–04
  26. By: Auer, Raphael; Claessens, Stijn
    Abstract: Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions. The impact depends on the specific regulatory category to which the news relates: events related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism, and on restricting the interoperability of cryptocurrencies with regulated markets. News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains. These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions.
    Keywords: cryptocurrency; Digital Currencies; Event studies; regulation; valuations
    JEL: E42 E51 F31 G12 G28 G32 G38
    Date: 2020–04
  27. By: Olli Palm\'en
    Abstract: We study the effects of financial shocks on the United States economy by using a Bayesian structural vector autoregressive (SVAR) model that exploits the non-normalities in the data. We use this method to uniquely identify the model and employ inequality constraints to single out financial shocks. The results point to the existence of two distinct financial shocks that have opposing effects on inflation, which supports the idea that financial shocks are transmitted to the real economy through both demand and supply side channels.
    Date: 2020–06
  28. By: Emmanuel Carré; Laurent Le Maux (University of Western Brittany)
    Date: 2018–06–07
  29. By: Jonathan S. Hartley; Alessandro Rebucci
    Abstract: Amid the COVID-19 outbreak and related expected economic downturn, many developed and emerging market central banks around the world engaged in new long-term asset purchase programs, or so-called quantitative easing (QE) interventions. This paper conducts an event-study analysis of 24 COVID-19 QE announcements made by 21 global central banks on their local 10-year government bond yields. We find that the average developed market QE announcement had a statistically significant -0.14% 1-day impact, which is slightly smaller than past interventions during the Great Recession era. In contrast, the average impact of emerging market QE announcements was significantly larger, averaging -0.28% and -0.43% over 1-day and 3-day windows, respectively. Across developed and emerging bond markets, we estimate an overall average 1-day impact of -0.23%. We also show that all 10-year government bond yields in our sample rose sharply in mid-March 2020, but fell substantially after the period of QE announcements that we study in the paper.
    JEL: E52 E58 F42 G14 I28
    Date: 2020–06
  30. By: Ozge Akinci; Gianluca Benigno; Albert Queraltó
    Abstract: The COVID-19 outbreak has triggered unusually fast outflows of dollar funding from emerging market economies (EMEs). These outflows are known as “sudden stop” episodes, and they are typically followed by economic contractions. In this post, we assess the macroeconomic effects of the COVID-induced sudden stop of capital flows to EMEs, using our open-economy DSGE model. Unlike existing frameworks, such as the Federal Reserve Board’s SIGMA model, our model features both domestic and international financial constraints, making it well-suited to capture the effects of an outflow of dollar funding. The model predicts output losses in EMEs due in part to the adverse effect of local currency depreciation on private-sector balance sheets with dollar debts. The financial stresses in EMEs, in turn, spill back to the U.S. economy, through both trade and financial channels. The model-predicted output losses are persistent (consistent with previous sudden stop episodes), with financial effects being a significant drag on the recovery. We stress that we are only tracing out the effects of one particular channel (the stop of capital flows and its associated effect on funding costs) and not the totality of COVID-related effects.
    Keywords: sudden stops; COVID-19; spillovers and spillbacks
    JEL: E2 F1
    Date: 2020–05–18
  31. By: Nina Boyarchenko; Richard K. Crump; Anna Kovner
    Abstract: In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support market functioning and provide a liquidity backstop for the commercial paper market. The domestic commercial paper market provides a venue for short-term financing for companies which employ more than 6 million Americans. Securities in the commercial paper market represent a key asset class for money market mutual funds. This post documents the dislocations in the commercial paper market that motivated the creation of this facility, and tracks the subsequent improvement in market conditions.
    Keywords: commercial paper; Commercial Paper Funding Facility (CPFF); COVID-19
    JEL: E51
    Date: 2020–05–15

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