nep-mon New Economics Papers
on Monetary Economics
Issue of 2020‒10‒19
29 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Do Women Matter in Monetary Policy Boards? By Donato Masciandaro; Paola Profeta; Davide Romelli
  2. Forward Guidance and Expectation Formation: A Narrative Approach By Christopher S. Sutherland
  3. Monetary policy surprises and exchange rate behavior By Gürkaynak, Refet S.; Kara, Ali Hakan; Kısacıkoğlu, Burçin; Lee, Sang Seok
  4. Bank Coordination and Monetary Transmission: Evidence from India By Dixit, Shiv; Subramanian, Krishnamurthy
  5. The limits to robust monetary policy in a small open economy with learning agents By André Marine Charlotte; Dai Meixing
  6. Monetary Policy Cooperation/Coordination and Global Financial Crises in Historical Perspective By Michael D. Bordo
  7. The (ir)relevance of the nominal lower bound for real yield curve analysis By Schupp, Fabian
  8. A Theory of Foreign Exchange Interventions By Sebastián Fanelli; Ludwig Straub
  9. Foreign exchange intervention and financial stability By Pierre-Richard Agénor; Timothy Jackson; Luiz Awazu Pereira da Silva
  10. The Effects of QQE on Long-run Inflation Expectations in Japan By Mototsugu Shintani; Naoto Soma
  11. Market-based Long-term Inflation Expectations in Japan: A Refinement on Breakeven Inflation Rates By Kazuhiro Hiraki; Wataru Hirata
  12. Security and convenience of a central bank digital currency By Charles M. Kahn; Francisco Rivadeneyra
  13. Asymmetric Effects of Monetary Policy Easing and Tightening By Davide Debortoli; Mario Forni; Luca Gambetti; Luca Sala
  14. Why Does the Fed Move Markets so Much? A Model of Monetary Policy and Time-Varying Risk Aversion By Carolin Pflueger; Gianluca Rinaldi
  15. An assessment of the Phillips curve over time: evidence for the United States and the euro area By Marente Vlekke; Martin Mellens
  16. The Contribution of Food Subsidy Policy to Monetary Policy By William Ginn; Marc Pourroy
  17. The (unobservable) value of central bank’s refinancing operations By Albertazzi, Ugo; Burlon, Lorenzo; Pavanini, Nicola; Jankauskas, Tomas
  18. The case for central bank independence: a review of key issues in the international debate By Dall’Orto Mas, Rodolfo; Vonessen, Benjamin; Fehlker, Christian; Arnold, Katrin
  19. A Toolkit for Solving Models with a Lower Bound on Interest Rates of Stochastic Duration By Gauti B. Eggertsson; Sergey K. Egiev; Alessandro Lin; Josef Platzer; Luca Riva
  20. The New Intergovernmentalism and the Euro Crisis: A Painful Case? By Dermot Hodson
  21. Sectoral output effects of monetary policy: do sticky prices matter? By Henkel, Lukas
  22. Classification of monetary and fiscal dominance regimes using machine learning techniques By Hinterlang, Natascha; Hollmayr, Josef
  23. An Index of African Monetary Integration (IAMI) By Diop, Samba; Asongu, Simplice
  24. Fifty Shades of QE: Conflicts of Interest in Economic Research By Brian Fabo; Martina Jančoková; Elisabeth Kempf; Ľuboš Pástor
  25. Brexit and the Euro By Nauro Campos; Corrado Macchiarelli
  26. Volatility transmission and volatility impulse response functions in the main and the satellite Renminbi exchange rate markets By Funke, Michael; Loermann, Julius; Tsang, Andrew
  27. Lessons learned from the world's first CBDC By Grym, Aleksi
  28. Liquidity Risk, Market Power and Reserve Accumulation By Grégory Claeys; Chara Papioti; Andreas Tryphonides
  29. Global Financial Cycle and Liquidity Management By Olivier Jeanne; Damiano Sandri

  1. By: Donato Masciandaro; Paola Profeta; Davide Romelli
    Abstract: We construct a new dataset on the presence of women on central bank monetary policy committees for a set of 103 countries, over the period 2002-2016. We document an increasing share of women in monetary policy committees, which is mainly associated with a higher overall presence of women in central banks and less so with other institutional factors or country characteristics. We then investigate the impact of this trend on monetary policymaking by estimating Taylor rules augmented to include the share of women on monetary policy committees. We show that central bank boards with a higher proportion of women set higher interest rates for the same level of inflation. This suggests that women board members have a more hawkish approach to monetary policy. We confirm this result by analysing the voting behaviour of members of the executive board of the Swedish Central Bank during the period 2000-2017.
    Keywords: Central banks; Monetary Policy Committees; Women on boards; Taylor rule
    JEL: E02 E52 E58 J16
    Date: 2020
  2. By: Christopher S. Sutherland
    Abstract: How forward guidance influences expectations is not yet fully understood. To study this issue, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I find that, in response to a change in forward guidance, forecasters revise their interest rate forecasts in the intended direction by five basis points on average. The effect is not attributable to central bank information effects. Instead, when forming rate expectations, forecasters place full weight on their own inflation and growth forecasts and zero weight on those of the central bank.
    Keywords: Central bank research; Monetary policy; Monetary policy communications; Transmission of monetary policy
    JEL: D84 E58
    Date: 2020–09
  3. By: Gürkaynak, Refet S.; Kara, Ali Hakan; Kısacıkoğlu, Burçin; Lee, Sang Seok
    Abstract: Central banks unexpectedly tightening policy rates often observe the exchange value of their currency depreciate, rather than appreciate as predicted by standard models. We document this for Fed and ECB policy days using event studies and ask whether an information effect, where the public attributes the policy surprise to an unobserved state of the economy that the central bank is signaling by its policy may explain the abnormality. It turns out that many informational assumptions make a standard two-country New Keynesian model match this behavior. To identify the particular mechanism, we condition on multiple asset prices in the event study and model implications for these. We find that there is heterogeneity in this dimension in the event study and no model with a single regime can match the evidence. Further, even after conditioning on possible information effects driving longer term interest rates, there appear to be other drivers of exchange rates. Our results show that existing models have a long way to go in reconciling event study analysis with model-based mechanisms of asset pricing.
    Keywords: exchange rate response to monetary policy,central bank information effect,open economy macro-finance modeling
    JEL: E43 E44 E52 E58 G14
    Date: 2020
  4. By: Dixit, Shiv; Subramanian, Krishnamurthy
    Abstract: We propose a new channel for the transmission of monetary policy shocks, the coordination channel. We develop a New Keynesian model in which bank lending is strategically complementary. Banks do not observe the distribution of loans but infer it using Gaussian signals. Under this paradigm, expectations of tighter credit conditions reduce banks’ lending response to monetary shocks. As a result, lack of coordination and information about other banks’ actions dampen monetary transmission. We test these predictions by constructing a dataset that links the evolution of interest rates to firms’ bank credit relationships in India. Consistent with our model, we find that the cross-sectional mean and dispersion of lending rates, which capture the expected value and the precision of the signals of credit extended by other banks, are significant predictors of monetary transmission. Our quantitative results suggest that lending complementarities reduce monetary transmission to inflation and output by about a third.
    Keywords: Monetary policy transmission, India, lending rates
    JEL: E43 E52 G21
    Date: 2020–08–10
  5. By: André Marine Charlotte; Dai Meixing
    Abstract: We study the impact of adaptive learning for the design of a robust monetary policy using a small open-economy New Keynesian model. We find that slightly departing from rational expectations substantially changes the way the central bank deals with model misspecification. Learning induces an intertemporal trade-off for the central bank, i.e., stabilizing inflation (output gap) today or stabilizing it tomorrow. The central bank should optimally anchoring private agents expectations in the short term in exchange of easier future intratemporal trade-offs. Compared to the rational expectations equilibrium, the possibility to conduct robust monetary policy is limited in a small open economy under learning for any exchange rate pass-through level and any degree of trade openness. The misspecification that can be introduced into all equations of the model is lower in a small open economy, and approaches zero at high speed as the learning gain rises.
    Keywords: Robust control;model uncertainty;adaptive learning;small open economy
    JEL: C62 D83 D84 E52 E58
    Date: 2020–09
  6. By: Michael D. Bordo
    Abstract: The COVID-19 pandemic spawned a global liquidity crisis in March 2020. The global liquidity crisis was alleviated by the Federal Reserve and other advanced country central banks cooperating by extending the swap lines they developed in the Global Financial Crisis 2007-2008. Central bank cooperation in 2020 evolved from a two-century history across several monetary regimes that is surveyed in this paper. I find that in monetary regimes which are rules-based cooperation was most successful. International currency swaps developed to manage exchange rates during the Bretton Woods era have evolved into the leading tool to manage international liquidity crises. The swap network can be viewed as a step in the direction of a global financial safety net.
    JEL: E58 F33 N20
    Date: 2020–10
  7. By: Schupp, Fabian
    Abstract: I propose a new term structure model for euro area real and nominal interest rates which explicitly incorporates a time-varying lower bound for nominal interest rates. Results suggest that the lower bound is of importance in structural analyses implying time-varying impulse responses of yield components. With short-term rate expectations at or close to the lower bound, premium components are less reactive to a typical 10 bp increase in inflation, while real rate responses change their sign from positive to negative. However, it is further shown that the lower bound is of only little relevance for decomposing yields into their expectations and premium components once survey information is incorporated. Overall, results support the conclusion that reaching the effective lower bound may change the way macroeconomic shocks propagate along the term structure of nominal as well as real interest rates. JEL Classification: E31, E43, E44, E52
    Keywords: euro area, inflation expectations, inflation risk premium, joint real-nominal term structure modelling, lower bound, monetary policy
    Date: 2020–10
  8. By: Sebastián Fanelli; Ludwig Straub
    Abstract: We study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry-trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (a) the optimal policy leans against the wind, stabilizing the exchange rate; (b) it involves smooth spreads but allows exchange rates to jump; (c) it partly relies on “forward guidance”, with non-zero interventions even after the shock has subsided; (d) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.
    JEL: F31 F32 F41 F42
    Date: 2020–09
  9. By: Pierre-Richard Agénor; Timothy Jackson; Luiz Awazu Pereira da Silva
    Abstract: This paper studies the effects of sterilized foreign exchange market intervention in a model with financial frictions and imperfect capital mobility. The central bank operates a managed float regime and issues sterilization bonds that are imperfect substitutes (as a result of economies of scope) to investment loans in bank portfolios. The model is parameterized and used to study the macroeconomic effects of, and policy responses to, capital inflows associated with a transitory shock to world interest rates. The results show that sterilized intervention can be expansionary through a bank portfolio effect and may increase volatility and financial stability risks. Full sterilization is optimal only when the bank portfolio effect is absent. The optimal degree of intervention is more aggressive when the central bank can choose simultaneously the degree of sterilization; in that sense, the instruments are complements. When the central bank's objective function depends on the cost of sterilization, and concerns with that cost are sufficiently high, intervention and sterilization can be substitutes---independently of whether exchange rate and financial stability considerations also matter.
    JEL: E32 E58 F41
    Date: 2020–09
  10. By: Mototsugu Shintani (Faculty of Economics, the University of Tokyo, Japan; and Institute for Monetary and Economic Studies, Bank of Japan); Naoto Soma (Department of Economics, Yokohama National University)
    Abstract: This paper investigates whether a series of unconventional monetary policies conducted by the Bank of Japan in 2013 contributed to an increase in long-run inflation expectations, which had been below 0 percent. Using a panel dataset of professional forecasts, we estimate the dynamic Nelson-Siegel model and extract long-run inflation expectations as a common factor. We find that the introduction of Quantitative and Qualitative Monetary Easing (QQE) in April 2013, rather than raising the inflation target from 1 percent to 2 percent in January 2013, significantly increased long-run inflation expectations in Japan. In addition to this outcome, we find that the correlation between short-run and long-run expectations has been reduced since the introduction of QQE. Overall, our results suggest that inflation expectations have been "re-anchored" to the level around 1 percent since the introduction of QQE, while the level is still short of the 2 percent target.
    Date: 2020–10
  11. By: Kazuhiro Hiraki (Bank of Japan); Wataru Hirata (Bank of Japan)
    Abstract: In Japan, the breakeven inflation rate (BEI), commonly used as a proxy for market-based long-term inflation expectations, has evolved lower than survey-based measures of long-term inflation expectations. The literature has pointed to three factors, other than long-term inflation expectations, that act as drivers of long-term BEI rates: (i) the deflation protection option premium of inflation-linked bonds, (ii) the liquidity premium of the bonds, and (iii) the spread between nominal and real term premia (the term premium spread). This paper estimates an affine term structure model to decompose Japan fs BEI into long-term inflation expectations and these three other driving factors. Our empirical results show that the deflation protection option premium for Japan fs Inflation-Indexed Bonds (JGBi) has pushed the BEI up, while the liquidity premium of JGBi and the term premium spread have pulled it down, all having non-negligible contributions to developments in the BEI. This indicates that the evolution of Japan fs BEI has been driven by these three factors as well as by the long-term inflation expectations of market participants. Consequently, the estimated long-term inflation expectations have evolved higher than the BEI throughout almost the entire estimation period.
    Keywords: Breakeven inflation rate; Inflation expectations; Liquidity premium; Deflation protection option premium; Term premium
    JEL: E31 E43 G12
    Date: 2020–09–30
  12. By: Charles M. Kahn; Francisco Rivadeneyra
    Abstract: An anonymous token-based central bank digital currency (CBDC) would pose certain security risks to users. These risks arise from how balances are aggregated, from their transactional use and from the competition between suppliers of aggregation solutions. The central bank could mitigate these risks in the design of the CBDC by limiting balances or transfers, modifying liability rules or imposing security protocols on storage providers.
    Keywords: Central bank research; Digital currencies and fintech; Financial system regulation and policies; Payment clearing and settlement systems
    JEL: E42 G21
    Date: 2020–10
  13. By: Davide Debortoli; Mario Forni; Luca Gambetti; Luca Sala
    Abstract: Monetary policy easing and tightening have asymmetric effects: a policy easing has large effects on prices but small effects on real activity variables. The opposite is found for a policy tightening: large real effects but small effects on prices. Nonlinearities are estimated using a new and simple procedure based on linear Structural Vector Autoregressions with exogenous variables (SVARX). We rationalize the result through the lens of a simple model with downward nominal wage rigidities.
    Keywords: monetary policy shocks, nonlinear effects, structural VAR models
    JEL: C32 E32
    Date: 2020–09
  14. By: Carolin Pflueger; Gianluca Rinaldi
    Abstract: We build a new model integrating a work-horse New Keynesian model with investor risk aversion that moves with the business cycle. We show that the same habit preferences that explain the equity volatility puzzle in quarterly data also naturally explain the large high-frequency stock response to Federal Funds rate surprises. In the model, a surprise increase in the short-term interest rate lowers output and consumption relative to habit, thereby raising risk aversion and amplifying the fall in stocks. The model explains the positive correlation between changes in breakeven inflation and stock returns around monetary policy announcements with long-term inflation news.
    JEL: E43 E44 E52 G12
    Date: 2020–09
  15. By: Marente Vlekke (CPB Netherlands Bureau for Economic Policy Analysis); Martin Mellens (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We assess the stability of the coefficient on the unemployment gap in various linear dynamic Phillips curve models. We allow the coefficient on the unemployment gap and the other variables in our model to be time-varying, so that we can monitor the importance of the Phillips curve over time. We compare the effects of different measures for inflation and inflation expectations on our estimation results. In our analysis, we use state space methods and adopt a practical approach to Bayesian estimation with feasible testing and diagnostic checking procedures. Empirical results are presented for the United States and the five largest euro area economies. Our main conclusion is that in the United States the Phillips curve for headline inflation has remained empirically relevant over the years while there are periods when its impact has been low. For measures of core inflation we find a declining Phillips curve. In the euro area the strength of the relationship differs per country and over time, but has overall been weak and volatile in the past three decades. For both the United States and the euro area countries, we find little evidence of the “anchored expectations"-hypothesis.
    JEL: C18 C32 C52 E24 E31
    Date: 2020–09
  16. By: William Ginn (Université de Nuremberg); Marc Pourroy
    Abstract: Monetary policy is generally viewed in the literature as the only institution responsible for price stability. This approach overlooks the importance of food price stabilization policies, which are particularly important in low-and middle-income economies. We estimate a Bayesian DSGE model that incorporates fiscal and monetary policy tailored to India. Fiscal policy is based on a consumer food price subsidy. The empirical evidence suggests that food subsidies create a policy-induced form of food price-stickiness that operates in parallel with, yet is different to, the classic Calvo monopolistic competition framework. We find that the food price subsidy reduces CPI volatility and monetary policy reaction: following a world food price shock, interest rate volatility would be 10% higher absent food subsidies. Putting this effect aside would lead to overestimate the effectiveness of inflation targeting in EMEs. A main finding is the subsidy policy reduces aggregate welfare, albeit we find heterogeneous distributional effects by households.
    Keywords: DSGE Model,Price stabilisation,Food prices,Commodities,Monetary Policy
    Date: 2020–09–21
  17. By: Albertazzi, Ugo; Burlon, Lorenzo; Pavanini, Nicola; Jankauskas, Tomas
    Abstract: We quantify the impact that central bank refinancing operations and funding facilities had at reducing the banking sector’s intrinsic fragility in the euro area in 2014-2019. We do so by constructing, estimating and calibrating a micro-structural model of imperfect competition in the banking sector that allows for runs in the form of multiple equilibria, in the spirit of Diamond & Dybvig (1983), banks’ default and contagion, and central bank funding. Our framework incorporates demand and supply for insured and uninsured deposits, and for loans to firms and households, as well as borrowers’ default. The estimation and the calibration are based on confidential granular data for the euro area banking sector, including information on the amount of deposits covered by the deposit guarantee scheme and the borrowing from the European Central Bank (ECB). We document that the quantitative relevance of non-fundamental risk is potentially large in the euro area banking sector, as witnessed by the presence of alternative equilibria with run-type features, but also that central bank interventions exerted a crucial role in containing fundamental as well as non-fundamental risk. Our counterfactuals show that 1 percentage point reduction (increase) in the ECB lending rate of its refinancing operations reduces (increases) the median of banks’ default risk across equilibria by around 50%, with substantial heterogeneity of this pass-through across time, banks and countries. JEL Classification: E44, E52, E58, G01, G21, L13
    Keywords: bank runs, central bank policies, imperfect competition, multiple equilibria, structural estimation
    Date: 2020–10
  18. By: Dall’Orto Mas, Rodolfo; Vonessen, Benjamin; Fehlker, Christian; Arnold, Katrin
    Abstract: This Occasional Paper analyses how significant expansions in central banks’ mandates, roles and instruments can result in challenges to the independence of monetary policy. The paper reviews, in particular, some of the key challenges to central bank independence brought about by the global financial crisis (GFC) of 2007 and assesses their impact on the de jure and de facto independence of selected central banks around the world in the past few years. It finds that although the level of de jure (legal) central bank independence did not deteriorate, the level of de facto (actual) independence of the central banks of some of the largest economies in the world may have weakened. The paper presents counterarguments to the key critiques raised against central banks due to their policy response during the GFC, and concludes that the case for central bank independence is as strong as ever. JEL Classification: B1, B2, C4, E3, E4, E5, E6, K3, N1, N2
    Keywords: central bank independence, central bank mandate, financial stability, global financial crisis, price stability
    Date: 2020–10
  19. By: Gauti B. Eggertsson; Sergey K. Egiev; Alessandro Lin; Josef Platzer; Luca Riva
    Abstract: This paper presents a toolkit to solve for equilibrium in economies with the effective lower bound (ELB) on the nominal interest rate in a computationally efficient way under a special assumption about the underlying shock process, a two-state Markov process with an absorbing state. We illustrate the algorithm in the canonical New Keynesian model, replicating the optimal monetary policy in Eggertsson and Woodford (2003), as well as showing how the toolkit can be used to analyse the medium-scale DSGE model developed by the Federal Reserve Bank of New York. As an application, we show how various policy rules perform relative to the optimal commitment equilibrium. A key conclusion is that previously suggested policy rules – such as price level targeting and nominal GDP targeting – do not perform well when there is a small drop in the price level, as observed during the Great Recession, because they do not imply sufficiently strong commitment to low future interest rates (“make-up strategy”). We propose two new policy rules, Cumulative Nominal GDP Targeting Rule and Symmetric Dual-Objective Targeting Rule that are more robust. Had these policies been in place in 2008, they would have reduced the output contraction by approximately 80 percent. If the Federal Reserve had followed Average Inflation Targeting – which can arguably approximate the new policy framework announced in August 2020 – the output contraction would have been roughly 25 percent smaller.
    JEL: E31 E40 E50 E60
    Date: 2020–10
  20. By: Dermot Hodson
    Abstract: The new intergovernmentalism seeks to understand the changing dynamics of contemporary European integration. It emphasises, inter alia, member states’ preference for deliberative modes of decision-making and their reluctance to delegate new powers to traditional supranational institutions. The euro crisis is sometimes seen as a difficult case for the new intergovernmentalism because of the perceived importance of hard bargaining over crisis measures during this episode and the new roles entrusted to the European Commission and the European Central Bank under crisis reforms. Such criticisms, this paper argues, overlook: the importance of high-level consensus-seeking and deliberation in saving the single currency; the disparate forms of delegation deployed to preserve member state influence over Economic and Monetary Union; and the extent to which the euro crisis has amplified the European Union’s political disequilibrium. Far from running counter to the new intergovernmentalism, it concludes, the euro crisis exemplifies the turbulent dynamics of the post-Maastricht period.
    Keywords: European integration, euro crisis, integration theory, new intergovernmentalism
    Date: 2019–06
  21. By: Henkel, Lukas
    Abstract: This paper studies the role of sticky prices for the monetary transmission mechanism, using disaggregated industry-level data from 205 US industries. There is substantial heterogeneity in the output responses of industries to monetary policy surprises. I show that an industry's response to monetary policy surprises is systematically related to an industry's degree of price stickiness as measured by the average frequency of price adjustment. The size of the differential reaction is economically large and statistically significant. The results suggest that sticky prices play an important role in the transmission of monetary policy, consistent with New Keynesian macroeconomic models. This result is robust to the inclusion of further industry-level control variables. JEL Classification: E31, E32
    Keywords: monetary transmission mechanism, sticky prices
    Date: 2020–10
  22. By: Hinterlang, Natascha; Hollmayr, Josef
    Abstract: This paper identifies U.S. monetary and fiscal dominance regimes using machine learning techniques. The algorithms are trained and verified by employing simulated data from Markov-switching DSGE models, before they classify regimes from 1968-2017 using actual U.S. data. All machine learning methods outperform a standard logistic regression concerning the simulated data. Among those the Boosted Ensemble Trees classifier yields the best results. We find clear evidence of fiscal dominance before Volcker. Monetary dominance is detected between 1984-1988, before a fiscally led regime turns up around the stock market crash lasting until 1994. Until the beginning of the new century, monetary dominance is established, while the more recent evidence following the financial crisis is mixed with a tendency towards fiscal dominance.
    Keywords: Monetary-fiscal interaction,Machine Learning,Classification,Markov-switching DSGE
    JEL: C38 E31 E63
    Date: 2020
  23. By: Diop, Samba; Asongu, Simplice
    Abstract: This study improves the African Regional Integration Index (ARII) proposed by the African Union, the African Development Bank and the United Nations Economic Commission for Africa by providing a theoretical framework and addressing shortcomings related to weighting and aggregation of the indicator. This paper measures monetary integration in the eight African Regional Economic Communities (RECs) by constructing an Index of African Monetary Integration (IAMI). It proposes an Optimal Currency Area as theoretical framework and uses a panel approach to appreciate the dynamics of the index over different periods of time. The findings show that: (i) inflation and finance (trade and mobility) present the highest (lowest) score while ECOWAS is (EAC and IGAD are) the highest (least) performing. (ii) Surprisingly, in most RECs, the highest contributors to wealth creation are not the top performers in regional monetary integration. (iii) The RECs in Africa are characterized by a stable monetary integration which is different from the gradual process usually observed in monetary integration because with the exception of the EAC and UMA, the dynamics of IAMI show a steady trend in the overall index across time. Policy implications are discussed.
    Keywords: Monetary Integration; Currency Unions; Economic Communities; Africa
    JEL: E10 E50 O10 O55 P50
    Date: 2020–01
  24. By: Brian Fabo; Martina Jančoková; Elisabeth Kempf; Ľuboš Pástor
    Abstract: Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.
    JEL: A11 E52 E58 G28
    Date: 2020–09
  25. By: Nauro Campos; Corrado Macchiarelli
    Abstract: The year 2019 marks the 20th anniversary of the euro as well as Brexit, the expected exit of the United Kingdom from the European Union. This paper examines the relationship between Brexit and the stability of the euro area. We look at stability from the perspective of the distance between core and periphery groups of countries which, we show, is mainly determined by the level of synchronization of economic activity among them. We provide new evidence that the UK economy, since 1990, has become significantly more integrated with the EU economy. The UK moved from being in the periphery before 1990 to being in the core afterwards. We also provide evidence that the level of business cycles synchronization of the UK economy with the EU has had the highest, among all countries, variability over time. We conclude with some policy implications from Brexit for the stability of the euro area.
    Keywords: European Monetary Union, Eurozone, Core-periphery
    Date: 2020–03
  26. By: Funke, Michael; Loermann, Julius; Tsang, Andrew
    Abstract: We analyse volatility spillovers between the on- and offshore (CNY and CNH) Renminbi exchange rates towards the US dollar (USD). The volatility impulse response (VIRF) methodology introduced by Hafner and Herwatz (2006) is applied to several shocks between January 2012 and December 2019. Furthermore, we propose a novel way of estimating VIRFs based on Bayesian estimation of the MV-GARCH BEKK model. A simple Independence Chain Metropolis-Hastings algorithm allows drawing VIRFs in an efficient manner, allowing to analyse the significance and persistence of volatility shocks and associated volatility spillovers. The VIRF results show that the CNH exchange rate promptly reflects the global market demand and supply, while the CNY exchange rate reacts with a time lag. The VIRF results also show the existence of spillovers between the two markets as the co-volatility increases in response to shocks.
    JEL: C32 E58 F31 F51
    Date: 2020–10–06
  27. By: Grym, Aleksi
    Abstract: Central banks worldwide are currently exploring so called Central Bank Digital Currencies (CBDC). The Avant smart card system created by the Bank of Finland in the 1990's can be considered the world's first CBDC and the only one so far that has gone into production. Avant cards were based on smart card technology similar to that used in debit and credit cards today. Even though the system was initiated, developed, and for the first few years operated by the central bank, it was eventually spun off and sold to commercial banks. Once debit cards became less expensive and were upgraded to use smart card technology, Avant became obsolete and was shut down. The story of Avant can give us valuable insight contributing to the ongoing discussion regarding CBDC.
    Keywords: CBDC,e-money
    Date: 2020
  28. By: Grégory Claeys; Chara Papioti; Andreas Tryphonides
    Abstract: Using a multi-unit uniform auction model, we combine bidding data from open market operations as well as macroeconomic information to recover the latent distribution of liquidity risk across banks and how it is affected by policy in Chile. We find that unanticipated shocks to foreign reserve accumulation and interest rates have significant effects on aggregate beliefs about a liquidity shock in the near future, while news about reserve accumulation are not effective. These results suggest the presence of a novel informational channel for macroeconomic policy, while we demonstrate that accounting for market power is important for uncovering these effects.
    Keywords: multi-unit auction, liquidity risk, reserve accumulation, signaling
    JEL: C57 D44 E50 G20
    Date: 2020–10
  29. By: Olivier Jeanne; Damiano Sandri
    Abstract: We use a tractable model to show that emerging markets can protect themselves from the global financial cycle by expanding (rather than restricting) capital flows. This involves accumulating reserves when global liquidity is high to buy back domestic assets at a discount when global financial conditions tighten. Since the private sector does not internalize how this buffering mechanism reduces international borrowing costs, a social planner increases the size of capital flows beyond the laissez-faire equilibrium. The model also provides a role for foreign exchange intervention in less financially developed countries. The main predictions of the model are consistent with the data.
    JEL: F31 F32 F36 F38
    Date: 2020–10

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