nep-mon New Economics Papers
on Monetary Economics
Issue of 2021‒04‒05
34 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Machine Learning and Central Banks: Ready for Prime Time? By Hans Genberg; Özer Karagedikli
  2. Identification at the Zero Lower Bound By Sophocles Mavroeidis
  3. Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case By Ken Miyajima
  4. Foreign Exchange Intervention: A Dataset of Public Data and Proxies By Gustavo Adler; Kyun Suk Chang; Rui Mano; Yuting Shao
  5. Fed communication on financial stability concerns and monetary policy decisions: revelations from speeches By Klodiana Istrefi; Florens Odendahl; Giulia Sestieri
  6. Uncertainty and Monetary Policy during the Great Recession By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  7. Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework By Romain Lafarguette; Romain M Veyrune
  8. Facing the Global Financial Cycle: What Role for Policy By Nicoletta Batini; Luigi Durand
  9. Structural Changes in Investment and the Waning Power of Monetary Policy By Bloesch, Justin; Weber, Jacob P.
  10. Price-setting in the foreign exchange swap market: Evidence from order flow By Olav Syrstad; Ganesh Viswanath-Natraj
  11. The black hole of logistics costs of digitizing commodity money By Boliang Lin; Ruixi Lin
  12. The interaction of forward guidance in a two-country new Keynesian model By Ida, Daisuke; Iiboshi, Hirokuni
  13. Inflation Expectations of Euro Area Consumers and Firms By Parle, Conor; Zekaite, Zivile
  14. The Impact of Remittance Flow on Real Effective Exchange Rate: Empirical Evidence from The Gambia By Joof, Foday; Touray, Sheriff
  15. The interaction between macroprudential and monetary policies: The cases of Norway and Sweden By Jin Cao; Valeriya Dinger; Anna Grodecka-Messi; Ragnar Juelsrud; Xin Zhang
  16. A Monetary Policy Rule using Gravity Models By Peña, Guillermo
  17. Monetary Policy and the Racial Unemployment Rates in the US By Hamza Bennani
  18. Imperfect Exchange Rate Pass-through: Empirical Evidence and Monetary Policy Implications By Maryam Mirfatah; Vasco J. Gabriel; Paul Levine
  19. A global database on central banks' monetary responses to Covid-19 By Carlos Cantú; Paolo Cavallino; Fiorella De Fiore; James Yetman
  20. The Economic Impact of Yield Curve Compression: Evidence from Euro Area Forward Guidance and Unconventional Monetary Policy By Goodhead, Robert
  21. Intergenerational redistributive effects of monetary policy By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  22. Keynes’s finance, the monetary and demand-led circuits: a Sraffian assessment By Sergio Cesaratto; Riccardo Pariboni
  23. Forecasting inflation with twitter By J. Daniel Aromí; Martín Llada
  24. Exchange Rate Pass-Through to Consumer Prices in Turkey: Nonparametric Kernel Estimation Evidence By Yilmaz, Nejat; Yucel, Eray
  25. Money supply is endogenous and the Venezuelan hyperinflation is a monetary phenomenon By Juan Barredo-Zuriarrain
  26. An econometric analysis of the effectiveness of fiscal and monetary policies in India By Nadar, Anand
  27. The interaction of forward guidance in a two-country new Keynesian model By Daisuke Ida; Hirokuni Iiboshi
  28. A Review on Output-Inflation Trade-off Based on New Classical and New Keynesian Theories By Sim, Chong Yang
  29. Central Bank Swap Arrangements in the COVID-19 Crisis By Joshua Aizenman; Hiro Ito; Gurnain Kaur Pasricha
  30. Exchange Rate Parities and Taylor Rule Deviations By Christina Anderl; Guglielmo Maria Caporale
  31. Monetary and macroprudential policy complementarities: Evidence from European credit registers By Carlo Altavilla; Luc Laeven; José-Luis Peydró
  32. Long-run neutrality of money and inflation in Spanish economy, 1830-1998 By Rafael Emilio Congregado; Vicente Esteve
  33. The Voice of Monetary Policy By Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
  34. Law, mobile money drivers and mobile money innovations in developing countries By Simplice A. Asongu; Peter Agyemang-Mintah; Rexon T. Nting

  1. By: Hans Genberg (Asia School of Business); Özer Karagedikli (South East Asian Central Banks (SEACEN) Research and Training Centre and Centre for Applied Macroeconomic Analysis (CAMA))
    Abstract: In this article we review what machine learning might have to offer central banks as an analytical approach to support monetary policy decisions. After describing the central bank’s “problem†and providing a brief introduction to machine learning, we propose to use the gradual adoption of Vector Auto Regression (VAR) methods in central banks to speculate how machine learning models must (will?) evolve to become influential analytical tools supporting central banks’ monetary policy decisions. We argue that VAR methods achieved that status only after they incorporated elements that allowed users to interpret them in terms of structural economic theories. We believe that the same has to be the case for machine learning model.
    Date: 2021–03
  2. By: Sophocles Mavroeidis
    Abstract: I show that the Zero Lower Bound (ZLB) on interest rates can be used to identify the causal effects of monetary policy. Identification depends on the extent to which the ZLB limits the efficacy of monetary policy. I develop a general econometric methodology for the identification and estimation of structural vector autoregressions (SVARs) with an occasionally binding constraint. The method provides a simple way to test the efficacy of unconventional policies, modelled via a `shadow rate'. I apply this method to U.S. monetary policy using a three-equation SVAR model of inflation, unemployment and the federal funds rate. I reject the null hypothesis that unconventional monetary policy has no effect at the ZLB, but find some evidence that it is not as effective as conventional monetary policy.
    Date: 2021–03
  3. By: Ken Miyajima
    Abstract: The South African Reserve Bank has continued to fulfill its constitutional mandate to protect the value of the local currency by keeping inflation low and steady. This paper provides evidence that monetary policy tightening aimed at maintaining low and stable inflation could at the same time reduce consumption inequality over a 12–18 month horizon, commonly understood as the transmission lag of monetary policy action to the real economy, and similar to the distance between survey waves used in the analysis. In response to “exogenous” monetary policy tightening, the real consumption of individuals at lower ends of the consumption distribution declines relatively modestly, or even increases. With greater reliance on government transfers, thus smaller reliance on labor income, and relatively larger food consumption, these individuals appear to benefit mainly from lower inflation. By contrast, the real consumption of individuals at higher ends of the consumption distribution is more likely to decline due to lower labor income, weaker asset price performance, and higher debt service cost.
    Date: 2021–03–19
  4. By: Gustavo Adler; Kyun Suk Chang; Rui Mano; Yuting Shao
    Abstract: Foreign exchange intervention (FXI) is a highly debated topic. Yet, comprehensive and comparable data on FXI is hard to find. This paper provides a new dataset of FXI covering a large number of countries over the period 2000-20 at monthly and quarterly frequencies. It includes publicly available data for about 40 countries and carefully constructed proxies for 122 countries. Proxies are focused on both spot and derivative transactions that alter the central bank’s foreign currency position and account for a wide range of central bank operations, including vis-à-vis residents, the first proxy to do so to our knowledge. The paper discusses the merits of the new proxy relative to coarser measures traditionally used like the change in reserves, and potential definitional differences with published data. The paper also presents stylized facts using our newly constructed FXI proxies.
    Date: 2021–02–19
  5. By: Klodiana Istrefi (Banque de France); Florens Odendahl (Banco de España); Giulia Sestieri (Banque de France)
    Abstract: This paper studies the informational content of speeches of Fed officials, focusing on financial stability, from 1997 to 2018. We construct indicators that measure the intensity and tone of this topic for both Governors and Fed presidents. When added to a standard forward-looking Taylor rule, a higher topic intensity or negative tone is associated with more monetary policy accommodation than implied by the state of the economy. Our results are mainly driven by the information in speeches of Fed presidents. We discuss several channels to rationalize this finding.
    Keywords: monetary policy, Federal Reserve, financial stability, communication
    JEL: E03 E50 E61
    Date: 2021–03
  6. By: Giovanni Pellegrino (Department of Economics and Business Economics, Aarhus University); Efrem Castelnuovo (University of Padova); Giovanni Caggiano (Monash University and University of Padova)
    Abstract: We employ a nonlinear VAR framework and a state-of-the-art identification strategy to document the large response of real activity to a financial uncertainty shock during and in the aftermath of the great recession. We replicate this evidence with an estimated DSGE framework featuring a concept of uncertainty comparable to that in our VAR. We then use the estimated framework to quantify the output loss due to the large uncertainty shock that materialized in 2008Q3. We find such a shock to be able to explain about 60% of the output loss in the 2008-2014 period. The same estimated model unveils the role successfully played by the Federal Reserve in limiting the output loss that would otherwise have occurred had monetary policy been conducted as in normal times. Finally, we show that the rule estimated during the great recession is able to deliver an economic outcome closer to the flexible price one than the rule describing the Federal Reserve’s conduct in normal times.
    Keywords: Uncertainty shock, nonlinear IVAR, nonlinear DSGE framework, minimum-distance estimation, great recession
    JEL: C22 E32 E52
    Date: 2021–03–26
  7. By: Romain Lafarguette; Romain M Veyrune
    Abstract: This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.
    Keywords: Exchange rates;Vector autoregression;Exchange rate risk;Foreign exchange;Currency markets;Foreign Exchange Interventions,Value at Risk,GARCH,WP,var FX intervention rule,intervention region,central bank intervention frequency,FXI risk mitigation,market participant
    Date: 2021–02–12
  8. By: Nicoletta Batini; Luigi Durand
    Abstract: Abstract In this paper we ask whether countries can influence their exposure to changes in global financial conditions. Specifically, we show that even though we can model cross-country capital flows via a global factor that closely tracks changes in global financial conditions, there is a large degree of heterogeneity in the sensitivity of each country to this same global factor. We then evaluate whether this cross-country heterogeneity can be attributed to different policy choices, including measures of capital flow management, such as capital controls and macroprudential policies. In our main results, we show that higher levels of capital controls and macroprudential policies both dampen the sensitivity to the global factor. Furthermore, we show that countries’ monetary and exchange rate policies can also be successfully deployed. Overall, our results have implications that extend beyond the surge that preceded the 2008 global financial crisis, and that closely resonate in light of the financial disruptions that followed the COVID-19 pandemic.
    Keywords: Capital flows;Capital inflows;Capital controls;Capital flow surges;Exchange rates;Global Financial Cycle,Macroprudential Policy,IMF Institutional View.,WP,GFCy spillover,surge episode,capital flow data,capital flow episode happening,capital flow surge episode,capital flows shock
    Date: 2021–02–12
  9. By: Bloesch, Justin; Weber, Jacob P.
    Abstract: We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.
    Date: 2021–03–22
  10. By: Olav Syrstad; Ganesh Viswanath-Natraj
    Abstract: This paper investigates price discovery in foreign exchange (FX) swaps. Using data on inter-dealer transactions, we find that a 1 standard deviation increase in order flow (i.e. net pressure to obtain USD through FX swaps) increases the cost of dollar funding by up to 4 basis points after the 2008 crisis. This is explained by increased dispersion in dollar funding costs and quarter-end periods. We find central bank swap lines reduced the order flow to obtain USD through FX swaps, subsequently affecting the forward rate. In contrast, during quarter-ends and monetary announcements we observe high frequency adjustment of the forward rate.
    Keywords: interest rate parity, exchange rates, currency swaps, order flow, dollar funding
    JEL: E43 F31 G15
    Date: 2020
  11. By: Boliang Lin; Ruixi Lin
    Abstract: In this paper, we reveal the depreciation mechanism of representative money (banknotes) from the perspective of logistics warehousing costs. Although it has long been the dream of economists to stabilize the buying power of the monetary units, the goal we have honest money always broken since the central bank depreciate the currency without limit. From the point of view of modern logistics, the key functions of money are the store of value and low logistics (circulation and warehouse) cost. Although commodity money (such as gold and silver) has the advantages of a wealth store, its disadvantage is the high logistics cost. In comparison to commodity money, credit currency and digital currency cannot protect wealth from loss over a long period while their logistics costs are negligible. We proved that there is not such honest money from the perspective of logistics costs, which is both the store of value like precious metal and without logistics costs in circulation like digital currency. The reason hidden in the back of the depreciation of banknotes is the black hole of storage charge of the anchor overtime after digitizing commodity money. Accordingly, it is not difficult to infer the inevitable collapse of the Bretton woods system. Therefore, we introduce a brand-new currency named honest devalued stable-coin and built a attenuation model of intrinsic value of the honest money based on the change mechanism of storage cost of anchor assets, like gold, which will lay the theoretical foundation for a stable monetary system.
    Date: 2021–03
  12. By: Ida, Daisuke; Iiboshi, Hirokuni
    Abstract: Using the method of Haberis and Lipinska (2020), this paper explores the effect of forward guidance (FG) in a two-country New Keynesian (NK) economy under the zero lower bound (ZLB). We simulate the effect of different lengths of FG or the zero interest rate policy under the circumstance of the global liquidity trap. We show that the size of the intertemporal elasticity of substitution plays an important role in determining the beggar-thy-neighbor effect or the prosper-thy-neighbor effect of home FG policy on the foreign economy. And in the former case, by targeting a minimum welfare loss of the individual country alone but not global welfare loss, two central banks can perform interesting FG bargaining in which they cooperatively adopt the same length of FG or strategically deviate from cooperation.
    Keywords: Forward guidance; Zero lower bound on nominal interest rates; Two-country new-Keynesian model; Taylor rule
    JEL: E52 E58 F41
    Date: 2021–03–22
  13. By: Parle, Conor (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland)
    Abstract: This Economic Letter examines what information is most relevant for the inflation expectations of consumers and firms in the euro area. We find that confidence in the economy is very important. However, the relationship between confidence and inflation expectations for consumers is negative, while it is positive for firms. Actual consumer price inflation, especially for food and energy, is also strongly associated with expectations of future inflation but to a varying degree. Producer price inflation is an important predictor of firms’ expectations. In addition, employment expectations are relevant for firms and past economic situation plays a large role for consumers. Our results shed some light as to why euro area consumers’ and firms’ inflation expectations diverged at the start of the COVID-19 crisis.
    Date: 2020–12
  14. By: Joof, Foday; Touray, Sheriff
    Abstract: The paper investigates the impact of remittance on real effective exchange rate in The Gambia. The Fully Modified OLS and Dynamic OLS are used on a monthly data from 2009M1 to 2019M12. FMOLS and DOLS estimations revealed that remittance has a positive significant impact on real effective exchange rate in The Gambia, implying that 1% increment in remittance leads to a real appreciation of the Gambian Dalasi (GMD) against the major currencies by 1.5%. Likewise, inflation is positively associated with REER, while the relationship amid foreign reserves and REER is inconclusive. Contrarily, money supply and monetary policy rate were found to have a depreciating impact on REER in both models.
    Keywords: Remittance, Real effective exchange rate, FMOLS, DOLS, The Gambia
    JEL: C1 E6
    Date: 2021–02–11
  15. By: Jin Cao; Valeriya Dinger; Anna Grodecka-Messi; Ragnar Juelsrud; Xin Zhang
    Abstract: To shed light on the interaction between macroprudential and monetary policies, we study the inward transmission of foreign monetary policy in conjunction with domestic macroprudential and monetary policies in Norway and Sweden. Using detailed bank-level data we show how Norwegian and Swedish banks' lending reacts to monetary policy surprises arising abroad, controlling for the domestic macroprudential stance and the interaction between monetary and macroprudential policies. In both countries, the domestic macroprudential policy helps mitigate the effects arising after foreign monetary surprises.
    Keywords: monetary policy, macroprudential policy, policy interactions, bank lending, inward transmission, international bank lending channel
    JEL: E43 E52 E58 F34 F42 G21 G28
    Date: 2020–07–04
  16. By: Peña, Guillermo
    Abstract: Monetary policy, when rules-based, usually follows rules regarding inflation or output, but not always quantity, endemic and financial endogenous rules that minimize the gap between optimal and current rates of inflation and output. This paper proposes a rules-based monetary policy focused on reducing differences between short-term Treasury bill and implicit pure interest rate given by gravity models. Satisfying this rule is highly explanatory for reaching potential GDP growth, and for inflation targets such as the 2%. The results are confirmed with worldwide data. Central Banks could follow this rule, or combinations with other complementary alternatives, when deciding rates and amounts.
    Keywords: Pure interest, Policy Rules, Financial Services, Marginal Productivity, Value added
    JEL: D78 E43 E44 E52 E58
    Date: 2021–02–09
  17. By: Hamza Bennani
    Abstract: This paper analyses the effects of monetary policy on labor market responses of different racial groups in the US from 1970-2013. Employing a narrative approach to identify monetary policy shocks and local projections, we find that monetary policy has a significant impact on White's unemployment rate. Empirical evidence indicates that an accommodative monetary shock affects positively and significantly White workers, while the effect on African-American workers is more uncertain and not significant for the Hispanic workers. These results are robust when considering unconventional monetary policy measures in the specification and when exploring the impact of monetary policy on different genders and age groups. Finally, we highlight that these results are mainly driven by a \enquote{recession effect}, whereby as a result of occupational, segregation minorities do not benefit from the Federal Reserve's accommodative monetary policy during recessions. Our findings suggest that monetary policy is ineffective in reducing the unemployment gap among minorities in the US, and that the Fed should specifically target the African-American unemployment rate in its reaction function. Finally, structural policies that aim to improve the skills of minorities and the fight against racial discrimination in the labor market, in particular during recessions, are also likely to mitigate the racial unemployment gap.
    Keywords: minorities; monetary policy; employment.
    JEL: E52 E58
    Date: 2021
  18. By: Maryam Mirfatah (University of Surrey and CIMS); Vasco J. Gabriel (University of Surrey and NIPE-UM); Paul Levine (University of Surrey and CIMS)
    Abstract: We construct a small open economy (SOE) DSGE model interacting with the rest of the world (ROW). We depart from the standard SOE model along several dimensions. Firstly, we nest two different pricing paradigms: local currency pricing (LCP) alongside producer currency pricing (PCP). Second, the production function incorporates capital and intermediate inputs produced domestically and abroad. Finally, international asset markets are incomplete. Using US and Canadian data, we explore the empirical evidence for PCP vs LCP pricing paradigms through a Bayesian estimation likelihood race and a comparison with the second moments of the data. We then examine the implications of these two paradigms for the conduct of monetary policy using optimized Taylor-type inertial interest rate rules with a zero lower bound constraint. The main results are: first, in a likelihood race LCP easily beats PCP and fits reasonably the second moments of the data; second, whereas for the closed economy ROW the price-level rule closely mimics the optimized general inflation-output rule, for the SOE the corresponding result requires a nominal income rule.
    Date: 2021–03
  19. By: Carlos Cantú; Paolo Cavallino; Fiorella De Fiore; James Yetman
    Abstract: The Covid-19 pandemic has been a global shock of unprecedented size that has hit most countries around the world. Central banks have responded quickly, on a massive scale. We present a novel database that provides information on central banks' responses to Covid-19 in 39 economies, including both advanced and emerging market economies. Monetary policy announcements are listed and classified under five types of tools: interest rate measures, reserve policies, lending operations, asset purchase programmes and foreign exchange operations. Within each category, the database provides additional information such as maturity, eligible counterparties, types of assets and the availability of fiscal backup. It also indicates whether the policy tool was newly introduced or had been previously deployed. The database has a companion dashboard to visualise the data graphically.
    Keywords: Covid-19 crisis, monetary policy, lending operations, asset purchase programmes, FX policy, reserve policy
    JEL: E43 E44 E52 E58 G01
    Date: 2021–03
  20. By: Goodhead, Robert (Central Bank of Ireland)
    Abstract: This paper studies the effects of forward guidance and unconventional monetary policy on financial and macro-economic variables using euro area data. I decompose intra-daily variation in response to communication by the ECB Governing Council using sign-restrictions, with the key identifying assumption being whether expansionary communication shocks steepen the yield curve (a forward guidance shock) or flatten it (a spread compression shock). Central bank “information shocks” are extracted via an additional restriction on equities. I employ recently developed non-parametric estimation methods to estimate a medium-scale time-varying parameter SVAR model with high-frequency identification, allowing consideration of multiple transmission channels simultaneously. Expansionary spread compression shocks markedly reduce volatility and persistently lower spreads, and affect activity and prices in line with theory. Spread compression surprises affect macro-economic variables in a manner comparable to forward guidance surprises. The effects of both forward guidance and yield curve compression surprises on inflation increased in the post-European sovereign debt crisis period, as did their effect on unemployment.
    JEL: E52 C32 C11
    Date: 2021–01
  21. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw; Narodowy Bank Polski); Michał Brzoza-Brzezina (SGH Warsaw School of Economics; Narodowy Bank Polski); Marcin Kolasa (SGH Warsaw School of Economics)
    Abstract: This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profiles of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks and ignoring them can lead to highly misleading conclusions. The redistribution is mainly driven by nominal assets and labor income, less by real and housing assets. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations.
    Keywords: monetary policy, life-cycle models, wealth redistribution
    JEL: E31 E52 J11
    Date: 2021
  22. By: Sergio Cesaratto; Riccardo Pariboni
    Abstract: This paper aims to stimulate the convergence of the Sraffian approach to demand-led growth theory with insights from monetary circuit theory and stock-flow models. The first Sraffian contribution to this convergence we identify is the extension of Garegnani’s interpretation of Keynes’ General Theory’s originality and limitations to Keynes’ 1937 papers on “finance.” In both cases, it is a question of freeing Keynes from the ties of marginalist theory. After discussing some troubles of the monetary circuit, we identify a complementarity between the Keynesian concept of finance, some insights of the monetary circuit, and the role attributed by the Sraffian take of demand-led growth to the autonomous components of demand (which are also Kalecki’s external markets). This seems to us to be the second Sraffian contribution to this convergence towards a monetary theory of demand-led growth.
    Keywords: Keynes, Finance, Monetary Circuit, Effective Demand, Supermultiplier
    JEL: B26 E12 E43 E50
    Date: 2021–03
  23. By: J. Daniel Aromí; Martín Llada
    Abstract: We use Twitter content to generate an indicator of attention allocated to inflation. The analysis corresponds to Argentina for the period 2012-2019. The attention index provides valuable information regarding future levels of inflation. A one standard deviation increment in the index is followed by an increment of approximately 0.4% in expected inflation in the consecutive month. Out-of-sample exercises confirm that social media content allows for gains in forecast accuracy. Beyond point forecasts, the index provides valuable information regarding inflation uncertainty. The proposed indicator compares favorably with other indicators such as media content, media tweets, google search intensity and consumer surveys.
    JEL: E31 C53
    Date: 2020–11
  24. By: Yilmaz, Nejat; Yucel, Eray
    Abstract: Exchange rate pass-through (ERPT) in the Turkish economy appeared again, especially after mid-2018 when policies to re-balance and soft-land the economy failed to a wide extent. Such re-appearance of the feedback from exchange rates to domestic prices deserves investigative efforts, having recalled that part of the stabilization success of the Central Bank of Turkey in early 2000s directly stemmed from its ability to reduce ERPT. In this paper, we aim to contribute to current policy discussions on Turkey by presenting our nonparametric kernel-based density function and regression estimates of the pass-through effect. Our findings are indicative not only of a sizable level of ERPT but also of its dependence on the size of currency depreciation.
    Keywords: Exchange Rate; Currency Depreciation; Pass-through to Inflation; Consumer Prices; Monetary Policy; Inflation Targeting; Central Bank Performance
    JEL: C51 E52 E58
    Date: 2021–02–08
  25. By: Juan Barredo-Zuriarrain (UPV/EHU - University of the Basque Country [Bizkaia], CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes)
    Abstract: During the last years, Venezuela has experimented both a deep economic crisis and hyperinflation. The US economic blockade and the internal economic crisis has played a main role in the sharp fall of the output levels. But regarding hyperinflation, it must be analyzed as the result of the expansionary policies adopted by the government and the Central Bank in a context of currency overvaluation. In this research, I show the mechanisms that enabled this hyperinflation, which continues today, and explain how the approach to the Venezuelan hyperinflation as a 'monetary phenomenon' is fully consistent with the hypothesis of the endogenous supply of money.
    Keywords: economic growth,hyperinflation,endogenous money,money supply,Venezuela
    Date: 2019–10–24
  26. By: Nadar, Anand
    Abstract: This study investigate the effectiveness of fiscal policy and monetary policy in India. We collected the time series data for India ranging from 1960 to 2019 from World Development Indicator (WDI). We applied the bound test to check the long-run relationship between fiscal policy, monetary policy and economic growth. The short-run and long-run effects of fiscal policy and monetary policy have been estimated using ARDL models. The results showed that there is a long-run relationship between fiscal and monetary policies with economic growth. The estimated short-run coefficients indicated that a few immediate short run impact of fiscal and monetary policies are insignificant. However, the shortrun impacts become significant as time passes. The long-run results suggested that the long-run impact of both fiscal and monetary policies on economic growth are positive and significant. More specifically, the GDP level increases if the money supply and government expenditure increase (Expansionary fiscal and monetary policies). On the other hand, the GDP level decrease if the money supply and government expenditure decrease (contractionary fiscal and monetary policies). Therefore, this study recommend to use expansionary policies to spur the Indian economy.
    Date: 2021–03–26
  27. By: Daisuke Ida; Hirokuni Iiboshi
    Abstract: Using the method of Haberis and Lipinska (2020), this paper explores the effect of forward guidance (FG) in a two-country New Keynesian (NK) economy under the zero lower bound (ZLB). We simulate the effect of different lengths of FG or the zero interest rate policy under the circumstance of the global liquidity trap. We show that the size of the intertemporal elasticity of substitution plays an important role in determining the beggar-thy-neighbor effect or the prosper-thy-neighbor effect of home FG policy on the foreign economy. And in the former case, by targeting a minimum welfare loss of the individual country alone but not global welfare loss, two central banks can perform interesting FG bargaining in which they cooperatively adopt the same length of FG or strategically deviate from cooperation.
    Date: 2021–03
  28. By: Sim, Chong Yang
    Abstract: Any economy is potentially subject to demand-side and supply-side shocks, which may cause output and inflation fluctuations. Thus, most economies have some form of macroeconomic stabilisation policies in place to regulate economic fluctuations. Although macroeconomic stabilisation policies are widely used to stabilise the economic fluctuations in an economy, their effectiveness has proven to be somewhat mixed in past literature. Accordingly, this has led to a long-standing debate between the advocates of interventionism and non-interventionism over the past few decades, particularly between the contending views of new classical and new Keynesians. This paper provides a review of literature on output-inflation trade-off based on new classical and new Keynesian views as an attempt to shed light on this matter.
    Keywords: New classical, New Keynesian, demand management policy, output, inflation, trade-off
    JEL: C22 E23 E31 E61
    Date: 2021–02–05
  29. By: Joshua Aizenman; Hiro Ito; Gurnain Kaur Pasricha
    Abstract: Facing acute strains in the offshore dollar funding markets during the COVID-19 crisis, the Federal Reserve (Fed) implemented measures to provide US dollar liquidity by reinforcing swap arrangements with five major central banks, reactivating them with nine other central banks and establishing a financial institutions and monetary authorities (FIMA) repo facility in March 2020. This paper assesses motivations for the Fed liquidity lines, and the effects and spillovers of US dollar auctions by central banks, for about 50 economies. We find that the access to the liquidity arrangements is driven by the recipient economies’ close trade ties with the US. Higher US bank and trade exposure to an economy increases its access to dollar liquidity lines through the swap arrangements and the new repo facility. Access to dollar liquidity also reflects global trade exposure. We investigate the announcement effects of the liquidity arrangements on several key financial variables, and find that announcements of expansion of Fed liquidity facilities led to appreciation of partner currencies against the US dollar, improved CDS spreads, and lowered the long-term interest rates of the recipient economies. Further, US dollar auctions by economies’ own central banks lead to temporary appreciation of their currencies, but dollar auctions by major central banks (BoE, ECB, BoJ and SNB) have persistent spillovers – they led to appreciation of other non-dollar currencies. These responses do not differ whether the economies have larger or smaller financial or trade ties with the US.
    JEL: F15 F21 F32 F36 G15
    Date: 2021–03
  30. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates the PPP and UIP conditions by taking into account possible nonlinearities as well as the role of Taylor rule deviations under alternative monetary policy frameworks. The analysis is conducted using monthly data from January 1993 to December 2020 for five inflation-targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeting ones (the US, the Euro-Area and Switzerland). Both a benchmark linear VECM and a nonlinear Threshold VECM are estimated; the latter includes Taylor rule deviations as the threshold variable. The results can be summarised as follows. First, the nonlinear specification provides much stronger evidence for the PPP and UIP conditions, the estimated adjustment speed towards equilibrium being twice as fast. Second, Taylor rule deviations play an important role: the adjustment speed is twice as fast when deviations are small and the credibility of the central bank is higher. Third, inflation targeting tends to generate a higher degree of credibility for the monetary authorities thereby reducing deviations of the exchange rate from the PPP- and UIP-implied equilibrium.
    Keywords: PPP, UIP, nonlinearities, Taylor rules deviations, inflation targeting
    JEL: C32 F31 G15
    Date: 2021
  31. By: Carlo Altavilla; Luc Laeven; José-Luis Peydró
    Abstract: We show strong complementarities between monetary and macroprudential policies in influencing credit. We exploit credit register data - crucially from multiple (European) countries and for both corporate and household credit - in conjunction with monetary policy surprises and indicators of macroprudential policy actions. Expansive monetary policy boosts lending more in accommodative macroprudential environments. This complementary effect of monetary and macroprudential policy is stronger for: (i) expansionary (as opposed to contractionary) monetary policy; (ii) riskier borrowers; (iii) less capitalized banks (especially when lending to riskier borrowers); (iv) consumer and corporate loans (rather than mortgages); and (v) more (ex-ante) productive firms (especially for less capitalized banks).
    Keywords: credit registers, household loans, corporate loans, monetary policy, macroprudential policy
    JEL: G21 G28 G32 G51 E58
    Date: 2021–03
  32. By: Rafael Emilio Congregado (Universidad de Huelva, Spain); Vicente Esteve (Departamento de Economia Aplicada II, Universidad de Valencia, Avda. dels Tarongers, s/n, 46022 Valencia, Spain)
    Abstract: In this article, we test a classical model of inflation with rational expec- tations for the case of Spain during the period 18301998. The principal testable implication is that money growth and inflation are cointegrated ruling out speculative bubbles. First, to detect episodes of potential explosive behaviour in the Spanish ination rate, we use the recursive unit root tests for explosiveness recently proposed by Phillips, Wu, and Yu (2011), and Phillips, Shi, and Yu (2015a,b). Second, we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a good empirical description of the classical model of ination for Spain over this long period. Our methodology is based on the instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008).
    Keywords: Classical model of ination; Money demand; Money growth; Ination; Explosiveness; Cointegration; Multiple structural breaks
    JEL: C22 E31 E41
    Date: 2021–03
  33. By: Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
    Abstract: We develop a deep learning model to detect emotions embedded in press conferences after the meetings of the Federal Open Market Committee and examine the influence of the detected emotions on financial markets. We find that, after controlling for the Fed’s actions and the sentiment in policy texts, positive tone in the voices of Fed Chairs leads to statistically significant and economically large increases in share prices. In other words, how policy messages are communicated can move the stock market. In contrast, the bond market appears to take few vocal cues from the Chairs. Our results provide implications for improving the effectiveness of central bank communications.
    JEL: D84 E31 E58 G12
    Date: 2021–03
  34. By: Simplice A. Asongu (Yaounde, Cameroon); Peter Agyemang-Mintah (Abu Dhabi, United Arab Emirate); Rexon T. Nting (London, UK)
    Abstract: This study investigates how the rule of law (i.e. law) modulates demand- and supply-side drivers of mobile money to influence mobile money innovations (i.e. mobile money accounts, the mobile phone used to send money and the mobile phone used to receive money) in developing countries. The following findings from Tobit regressions are established. First, from the demand-side linkages, law modulates: (i) bank accounts and automated teller machine (ATM) penetration for negative interactive relationships with mobile money innovations and (ii) bank sector concentration for a positive interactive relationship with mobile money accounts. Second, from supply-side linkages, law interacts with: (i) mobile subscriptions for a negative relationship with the mobile phone used to send money; (ii) mobile connectivity coverage for a negative nexus on the mobile phone used to receive money and (iii) mobile connectivity performance for a negative influence on the mobile phone used to send/receive money. Policy implications are discussed in the light of enhancing the rule of law as well as improving mobile phone subscription, connectivity and performance dynamics.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2021–01

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