nep-mon New Economics Papers
on Monetary Economics
Issue of 2021‒06‒21
forty-nine papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The fuel of unparalleled recovery: Monetary policy in South Africa between 1925 and 1936 By Swanepoel, Christie; Fliers, Philip
  2. Monetary Policy, Trends in Real Interest Rates and Depressed Demand By Paul Beaudry; Césaire Meh
  3. Initial monetary policy response to the COVID-19 pandemic in inflation targeting economies By Joanna Niedźwiedzińska
  4. The decline in euro area inflation and the choice of policy strategy By Wieland, Volker
  5. What drives portfolio capital inflows into emerging market economies? The role of the Fed’s and ECB’s balance sheet policies By Michał Ledóchowski; Piotr Żuk
  6. The Making of Hawks and Doves By Malmendier, Ulrike M.; Nagel, Stefan; Yan, Zhen
  7. One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area By Corsetti, Giancarlo; Duarte, Joao; Mann, Samuel
  8. Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? By Bergant, Katharina; Grigoli, Francesco; Hansen, Niels-Jakob; Sandri, Damiano
  9. Credible Emerging Market Central Banks could embrace Quantitative Easing to fight COVID-19 By Gianluca Benigno; Jon Hartley; Alicia García-Herrero; Alessandro Rebucci; Elina Ribakova
  10. UK inflation forecasts since the thirteenth century By James M. Nason; Gregor W. Smith
  11. Determinacy without the Taylor Principle By George-Marios Angeletos; Chen Lian
  12. Priming in inflation expectations surveys By Monique Reid; Hanjo Odendaal; Pierre L. Siklos; Stan Du Plessis
  13. Classification of monetary and fiscal dominance regimes using machine learning techniques By Hinterlang, Natascha; Hollmayr, Josef
  14. Gains from Wage Flexibility and the Zero Lower Bound By Billi, Roberto M; Galí, Jordi
  15. What Matters in Households' Inflation Expectations? By Andrade, Philippe; Gautier, Erwan; Mengus, Eric
  16. Effectiveness and Addictiveness of Quantitative Easing By Karadi, Peter; Nakov, Anton
  17. reaction model for a Central Bank against shocks on labor market - Part I By Martin, José Manuel
  18. Coronavirus panic fuels a surge in cash demand By Ashworth, Jonathan; Goodhart, Charles A
  19. Optimal Monetary Policy in Production Networks By La'O, Jennifer; Tahbaz-Salehi, Alireza
  20. Bagehot for Central Bankers By Laurent Le Maux
  21. FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability By Sandri, Damiano
  22. Monetary Easing, Leveraged Payouts and Lack of Investment By Acharya, Viral V.; Plantin, Guillaume
  23. Exposure to Grocery Prices and Inflation Expectations By Malmendier, Ulrike M.
  24. Interdependence Between Monetary Policy And Asset Prices In Asean-5 Countries By Solikin M. Juhro; Bernard N. Iyke; Paresh K. Narayan
  25. Unconventional Policy Instruments and Transmission Channels:A State-Contingent Toolbox for the ECB By Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
  26. Money, Banking, and Old-School Historical Economics By Eric Monnet; Francois R. Velde
  27. Law, mobile money drivers and mobile money innovations in developing countries By Simplice A. Asongu; Peter Agyemang-Mintah; Rexon T. Nting
  28. Mobile technology supply factors and mobile money innovation: Thresholds for complementary policies By Simplice A. Asongu; Nicholas M. Odhiambo
  29. Sectoral comovement, monetary policy and the credit channel By Di Pace, Federico; Görtz, Christoph
  31. Exchange rate shocks in multicurrency interbank markets By Pierre L. Siklos; Martin Stefan
  32. The Power of the Federal Reserve Chair By Riboni, Alessandro; Ruge-Murcia, Francisco J.
  33. Insider-Outsider Labor Markets, Hysteresis and Monetary Policy By Galí, Jordi
  34. Monetary Policy Spillovers Under Covid-19: Evidence from U.S. Foreign Bank Subsidiaries By Mark M. Spiegel
  35. Prudential Policy with Distorted Beliefs By Eduardo Dávila; Ansgar Walther
  36. Uncovered Interest Parity, Forward Guidance and the Exchange Rate By Galí, Jordi
  37. Nonlinear unemployment effects of the inflation tax By Mohammed Ait Lahcen; Garth Baughman; Stanislav Rabinovich; Hugo van Buggenum
  38. Risk-Taking, Capital Allocation and Optimal Monetary Policy By Joel M. David; David Zeke
  39. Supply of Sovereign Safe Assets and Global Interest Rates By Thiago Revil T. Ferreira; Samer Shousha
  40. International Capital Flows: Private Versus Public Flows in Developing and Developed Countries By Yun Jung Kim; Jing Zhang
  41. On the Green Interest Rate. By Nicholas Z. Muller
  42. The Rise in Foreign Currency Bonds: The Role of US Monetary Policy and Capital Controls By Bacchetta, Philippe; Cordonier, Rachel; Merrouche, Ouarda
  43. The Preferential Treatment of Green Bonds By Francesco Giovanardi; Matthias Kaldorf; Lucas Radke; Florian Wicknig
  44. ECB Communication: What Is It Telling Us? By Rokas Kaminskas; Modestas Stukas; Linas Jurksas
  45. Back to the Present: Learning about the Euro Area through a Now-casting Model By Danilo Cascaldi-Garcia; Thiago Revil T. Ferreira; Domenico Giannone; Michele Modugno
  46. Measuring the impact of a bank failure on the real economy: an EU-wide analytical framework By Vacca, Valerio Paolo; Bichlmeier, Fabian; Biraschi, Paolo; Boschi, Natalie; Álvarez, Antonio J. Bravo; Di Primio, Luciano; Ebner, André; Hoeretzeder, Silvia; Ballesteros, Elisa Llorente; Miani, Claudia; Ricci, Giacomo; Santioni, Raffaele; Schellerer, Stefan; Westman, Hanna
  47. Zombie Credit and (Dis-)Inflation: Evidence from Europe By Acharya, Viral V.; Crosignani, Matteo; Eisert, Tim; Eufinger, Christian
  48. A behavioral explanation for the puzzling persistence of the aggregate real exchange rate By Mario J. Crucini; Mototsugu Shintani; Takayuki Tsuruga
  49. The Microeconomics of Cryptocurrencies By Gandal, Neil; Gans, Joshua; Haeringer, Guillaume; Halaburda, Hanna

  1. By: Swanepoel, Christie; Fliers, Philip
    Abstract: The newly established South African Reserve Bank (SARB) was tasked to protect the currency by navigating the interwar gold standard, and, from March 1933, maintaining parity with the Pound Sterling. We find that South Africa's exit from gold secured an unparalleled and rapid recovery from the Great Depression. South Africa's exit was accompanied by an inextricable link of the SARB's policy rate to the interest rate set by the Bank of England (BoE). This sacrifice of independent monetary policy allowed the SARB to fix the country's exchange rate without impeding the flow of gold to London. The SARB fuelled the economy by reducing its policy rates and accumulating gold. Had South Africa not devalued, the country would have suffered a severe depression and persistent deflation. An alternative to the devaluation, was for the SARB to pursue a cheap money strategy. By setting interest rates historically low, we find that South Africa could have achieved higher levels of economic growth, at the cost of higher inflation. Ultimately, South Africa's unparalleled recovery can be ascribed to the devaluation, however the change in the SARB monetary policy and the bank's control over the gold markets were of paramount importance.
    Keywords: monetary policy management,interwar gold standard,South Africa
    JEL: N14 N20 E42 E52 E58 F33
    Date: 2021
  2. By: Paul Beaudry; Césaire Meh
    Abstract: Over the last few decades, real interest rates have trended downward in many countries. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors such as income inequality. In this paper we explore the claim that these trends may have been amplified by certain features of monetary policy. We show that when long-run asset demands by households are C-shaped in relation to real interest rates, a feature we motivate through bequest motives, monetary policy has the potential to affect steady-state properties even if money is neutral in the long run. In particular, we show that if monetary policy reacts aggressively to inflation, this supports a steady state where inflation is close to the central bank’s target. However, the same aggressive policy simultaneously favours the emergence of, and the convergence to, a second stable and determinate steady state where both the real interest rate and inflation are lower and monetary policy is constrained by the effective lower bound. We discuss how fiscal policy can be used to escape this low-real-rate, low-inflation trap with the potential for a discontinuous response of long-run inflation.
    Keywords: Debt management, Economic models, Fiscal policy, Inflation and prices, Interest rates, Monetary policy
    JEL: E2 E43 E44 E5 E52 E62 E63 H3 H6 H63
    Date: 2021–06
  3. By: Joanna Niedźwiedzińska (Narodowy Bank Polski)
    Abstract: The monetary policy response to COVID-19 was, in many ways, exceptional. This paper investigates some aspects of this exceptionality among 28 inflation targeters. Evidently, the reviewed central banks assessed the pandemic to be a clear-cut case for loosening by promptly announcing expansionary decisions, often at extraordinary meetings, using a possibly broad set of measures, with not much hesitation before reaching for unconventional ones. One of the key aspects of the analysed monetary policy response was also how quickly the authorities reacted to the shock. It turned out that, on average, advanced economies announced their initial policy actions within a month, whereas emerging market economies were twice as fast. This difference could be, however, to a great extent, explained by the timing of registering the first COVID-19 cases in a country, having room for policy manoeuvre with respect to nonstandard measures and being in need of liquidity provisions with a less deep financial system.
    Keywords: Monetary Policy, Central Banking, Policy Design.
    JEL: E31 E52 E58 E61
    Date: 2020
  4. By: Wieland, Volker
    Abstract: This note argues that the European Central Bank should adjust its strategy in order to consider broader measures of inflation in its policy deliberations and communications. In particular, it points out that a broad measure of domestic goods and services price inflation such as the GDP deflator has increased along with the euro area recovery and the expansion of monetary policy since 2013, while HICP inflation has become more variable and, on average, has declined. Similarly, the cost of owner-occupied housing, which is excluded from the HICP, has risen during this period. Furthermore, it shows that optimal monetary policy at the effective lower bound on nominal interest rates aims to return inflation more slowly to the inflation target from below than in normal times because of uncertainty about the effects and potential side effects of quantitative easing.
    Date: 2021
  5. By: Michał Ledóchowski (Narodowy Bank Polski); Piotr Żuk (Narodowy Bank Polski)
    Abstract: This paper provides an empirical investigation of the impact of balance sheet policies undertaken by the Fed and the ECB since the Global Financial Crisis of 2009 on portfolio capital flows to emerging market economies (EMEs). The analysis is based upon a panel dataset covering 31 EMEs from different regions throughout the period of 2009-2019. Our results show that quantitative easing by the Fed has translated into capital inflows into EMEs throughout the world. The Fed’s operations have affected both equity and debt flows. However, no such effect could be confirmed in the case of the balance sheet policies launched by ECB, even in the case of economies that remain closely integrated with the eurozone economy such as those from Central and Eastern Europe. These results have relevant policy implications, in particular in light of major central banks expanding their balance sheets in response to the Covid-19 pandemic. Most of all, in those EMEs that remain most vulnerable to capital flows volatility, changes in the Fed’s balance sheet policies may warrant domestic macroeconomic policy adjustment in order to mitigate capital flow volatility to these economies.
    Keywords: capital flows, emerging market economies, unconventional monetary policy spillovers, quantitative easing, balance sheet policies, longer-term refinancing operations
    JEL: E52 F32
    Date: 2020
  6. By: Malmendier, Ulrike M.; Nagel, Stefan; Yan, Zhen
    Abstract: Personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data. The resulting experience-based forecasts have significant predictive power for members' FOMC voting decisions, the hawkishness of the tone of their speeches, as well as the heterogeneity in their semi-annual inflation projections. Averaging over all FOMC members present at a meeting, inflation experiences also help to explain the federal funds target rate, over and above conventional Taylor rule components.
    Keywords: Availability bias; Experience effects; Federal Funds Rate; Inflation forecasts; monetary policy
    JEL: D84 E03 E50
    Date: 2020–06
  7. By: Corsetti, Giancarlo; Duarte, Joao; Mann, Samuel
    Abstract: We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity. We find this to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. We build a small open economy model featuring a housing sector and calibrate it to Spain. We show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the response of output and private consumption.
    Keywords: Adjustable Mortgage Rates; High-Frequency Identification; housing market; Loan-to-value Ratio; monetary policy; monetary union
    JEL: E21 E31 E44 E52 F44 F45
    Date: 2020–06
  8. By: Bergant, Katharina; Grigoli, Francesco; Hansen, Niels-Jakob; Sandri, Damiano
    Abstract: We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains.
    Keywords: capital controls; macroprudential policies; monetary policy
    JEL: E5 F3 F4
    Date: 2020–06
  9. By: Gianluca Benigno (Associate Professor in the Department of Economics at the London School of Economics); Jon Hartley (MPP Candidate and researcher, Harvard Kennedy School); Alicia García-Herrero (Senior Research Fellow, Bruegel); Alessandro Rebucci (Associate Professor of Finance, Johns Hopkins Carey Business School, CEPR and NBER); Elina Ribakova (Deputy Chief Economist, Institute of International Finance)
    Abstract: Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimizing the risks of large depreciations and spiralling inflation.
    Keywords: Coronavirus, COVID-19, Quantitative Easing, Emerging Markets, Fiscal Stimulus
    Date: 2020–06
  10. By: James M. Nason; Gregor W. Smith
    Abstract: Historians have suggested there were waves of inflation or price revolutions in the UK (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1914. We study retail price inflation since 1251 and model its forecasts. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long-horizon forecasts suggest only one inflation wave, that of the 20th century. We also use the model to measure inflation predictability and price-level instability from the beginning of the sample and to provide measures of real interest rates since 1695.
    Keywords: inflation, price revolutions, stochastic volatility, time-varying parameters
    JEL: E31 E37
    Date: 2021–03
  11. By: George-Marios Angeletos; Chen Lian
    Abstract: A long-standing issue in the theory of monetary policy is that the same path for the interest rate can be associated with multiple bounded equilibrium paths for inflation and output. We show that a small friction in memory and intertemporal coordination can remove this indeterminacy. This leaves no space for equilibrium selection by means of either the Taylor Principle or the Fiscal Theory of the Price Level. It reinforces the logical foundations of the New Keynesian model’s conventional solution (a.k.a. its fundamental or MSV solution). And it liberates feedback rules to serve only one function: stabilization.
    JEL: D8 E4 E5 E7
    Date: 2021–06
  12. By: Monique Reid; Hanjo Odendaal; Pierre L. Siklos; Stan Du Plessis
    Abstract: Since the global financial crisis of 2007/2008, there has been increased attention on inflation expectations and the use of central bank communication as a tool to achieve a central bank’s objective for inflation. However, much of this research analyses the survey data with limited consideration of the survey design that generated the data, or the differences across surveys and countries. In this research note, we focus on one element of South Africa’s Bureau of Economic Research household inflation expectation survey question – the inclusion of a historical inflation number in the survey question. Using a dataset created by Pienaar (2018), we are able to evaluate the impact of its inclusion on the data created. We find that the inclusion of a historical inflation number into the survey question, distorts survey responses, particularly a group considered to be relatively ‘less rational’. We do not investigate whether this bias is caused by anchoring (Tversky & Kahneman (1974), learning (Cavallo, Cruces, & Perez-Truglia, 2017), or any other theory, but we do argue that the observed bias should raise concern about the interpretation of surveys, where the question includes any form of extra information (priming). The impact not only distorts the level of the response, it also leads to changes in the distribution.
    Keywords: inflation expectations, survey design, priming
    JEL: E51 E58 E71
    Date: 2021–05
  13. By: Hinterlang, Natascha; Hollmayr, Josef
    Abstract: This paper identiftes U.S. monetary and ftscal dominance regimes using machine learning techniques. The algorithms are trained and verifted 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 classifter yields the best results. We ftnd clear evidence of ftscal dominance before Volcker. Monetary dominance is detected between 1984-1988, before a ftscally 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 ftnancial crisis is mixed with a tendency towards ftscal dominance.
    Keywords: Monetary-fiscal interaction,Machine Learning,Classification,Markov-switching DSGE
    JEL: C38 E31 E63
    Date: 2021
  14. By: Billi, Roberto M; Galí, Jordi
    Abstract: We analyze the welfare impact of greater wage flexibility in the presence of an occasionally binding zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.
    Keywords: labor-market flexibility; nominal rigidities; optimal monetary policy with commitment; Taylor rule; ZLB constraint
    JEL: E24 E32 E52
    Date: 2020–06
  15. By: Andrade, Philippe; Gautier, Erwan; Mengus, Eric
    Abstract: We provide evidence that households discretize their inflation expectations so that what matters for durable consumption decisions is the broad inflation regime they expect. Using survey data, we document that a large share of the adjustment in the average inflation expectation comes from the change in the share of households expecting stable prices; these households also consume relatively less than the ones expecting positive inflation. In contrast, variations of expectations across households expecting a positive inflation rate are associated with much smaller differences in individual durable consumption choices. We illustrate how this mitigates the expectation channel of monetary policy.
    Keywords: adjustment costs; Euler Equation; imperfect information; Inflation expectations; Stabilization policies; survey data
    JEL: D12 D84 E21 E31 E52
    Date: 2020–06
  16. By: Karadi, Peter; Nakov, Anton
    Abstract: This paper analyses optimal asset-purchase policies in a macroeconomic model with banks, which face occasionally-binding balance-sheet constraints. It proves analytically that asset-purchase policies are effective in offsetting large financial disturbances, which impair banks' capital position. It warns, however, that the policy is addictive because it flattens the yield curve, reduces the profitability of the banking sector and therefore slows down its recapitalization. Consequently, optimal exit from large central bank balance sheets is gradual.
    Keywords: Balance-Sheet-Constrained Banks; Large-scale asset purchases
    JEL: E32 E44 E52
    Date: 2020–06
  17. By: Martin, José Manuel
    Abstract: There’s a practical rule in financial and monetary economics: if unemployment rises, the economy needs stimulus, therefore, interest rates will fall. This rule of thumb is derived from the Phillips Curve and the Taylor rule. However, this effect is not formally included in those models. Thus, with small adjustments to the Phillips Curve and Taylor’s rule framework one can include the impact of shocks and expectations in the labor market, to overcome shocks on inflation and to improve the adjustments of central bank’s interest rate.
    Keywords: Econometrics, Central Bank, Inflation
    JEL: D84 E31 N1
    Date: 2020–12–09
  18. By: Ashworth, Jonathan; Goodhart, Charles A
    Abstract: Over the past decade the media have regularly reported on the imminent death of cash amid rapid innovation in payment technologies. However, cash in circulation has actually been growing strongly in many counties. Perhaps unsurprisingly given Coronavirus-related health concerns, there have been renewed calls to abandon cash and some observers have argued the virus will accelerate its demise. Data thus far suggest, however, that currency in circulation has actually surged in a number of countries. While the economic shutdowns and increased use of online retailing are currently diminishing cash's traditional function as a medium of exchange, it seems that this is being more than offset by panic driven hoarding of banknotes.
    Keywords: Coronavirus; Currency usage; Hoarding in panics; Payment technologies
    JEL: E40 E41 E49 E63 N10
    Date: 2020–06
  19. By: La'O, Jennifer; Tahbaz-Salehi, Alireza
    Abstract: This paper studies the optimal conduct of monetary policy in a multi-sector economy in which firms buy and sell intermediate goods over a production network. We first provide a necessary and sufficient condition for the monetary policy's ability to implement flexible-price equilibria in the presence of nominal rigidities and show that, generically, no monetary policy can implement the first-best allocation. We then characterize the constrained-efficient policy in terms of the economy's production network and the extent and nature of nominal rigidities. Our characterization result yields general principles for the optimal conduct of monetary policy in the presence of input-output linkages: it establishes that optimal policy stabilizes a price index with higher weights assigned to larger, stickier, and more upstream industries, as well as industries with less sticky upstream suppliers but stickier downstream customers. In a calibrated version of the model, we find that implementing the optimal policy can result in quantitatively meaningful welfare gains.
    Keywords: Misallocation; nominal rigidities; Optimal monetary policy; production networks
    JEL: D57 E52
    Date: 2020–06
  20. By: Laurent Le Maux (University of Western Brittany)
    Abstract: Walter Bagehot (1873) published his famous book, Lombard Street, almost 150 years ago. The adage 'lending freely against good collateral at a penalty rate' is associated with his name and his book has always been set on a pedestal and is still considered as the leading reference on the role of lender of last resort. Nonetheless, without a clear understanding of the theoretical grounds and the institutional features of the British banking system, any interpretation of Bagehot's writings remains vague if not misleading, which is worrisome if they are supposed to provide a guideline for policy makers. The purpose of the present paper is to determine whether Bagehot's recommendation remains relevant for modern central bankers or whether it was indigenous to the monetary and banking architecture of Victorian times.
    Keywords: Central Banking, Lender of Last Resort
    JEL: B1 E5
    Date: 2021–02–10
  21. By: Sandri, Damiano
    Abstract: We analyze the profitability of FX swaps used by the central bank of Brazil to shed light on the rationale for FX intervention. We find that swaps are profitable in expectation, suggesting that FX intervention is used to stabilize the exchange rate in the face of temporary excessive movements rather than to manipulate it away from fundamental values. In line with this interpretation, we find that the scale of FX intervention responds to the degree of exchange rate misalignment relative to UIP conditions. We also document that intervention is more aggressive when there is less uncertainty about the medium-term level of the exchange rate and when the exchange rate is overvalued rather than undervalued.
    Keywords: Exchange rate; FX intervention; Profitability
    JEL: E58 F31
    Date: 2020–06
  22. By: Acharya, Viral V.; Plantin, Guillaume
    Abstract: This paper studies a model in which a low monetary policy rate lowers the cost of capital for entrepreneurs, potentially spurring productive investment. Low interest rates, however, also induce entrepreneurs to lever up so as to increase payouts to equity. Whereas such leveraged payouts privately benefit entrepreneurs, they come at the social cost of reducing their incentives thereby lowering productivity and discouraging investment. If leverage is unregulated (for example, due to the presence of a shadow-banking system), then the optimal monetary policy seeks to contain such socially costly leveraged payouts by stimulating investment in response to adverse shocks only up to a level below the first-best. The optimal monetary policy may even consist of "leaning against the wind," i.e., not stimulating the economy at all, in order to fully contain leveraged payouts and maintain productive efficiency. We provide preliminary evidence consistent with the model's implications.
    Date: 2020–06
  23. By: Malmendier, Ulrike M.
    Abstract: We show that, when forming expectations about aggregate inflation, consumers rely on the prices of goods in their personal grocery bundles. Our analysis uses novel representative micro data that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices. The data also reveal that the weights consumers assign to price changes depend on the frequency of purchase, rather than expenditure share, and that positive price changes loom larger than similar-sized negative price changes. Prices of goods offered in the same store but not purchased (any more) do not affect inflation expectations, nor do other dimensions such as the volatility of price changes. Our results provide empirical guidance for models of expectations formation with heterogeneous consumers.
    Keywords: behavioral finance; Beliefs formation; Heterogeneous Agents; household finance; Inflation expectations; macroeconomics with micro data
    JEL: C90 D14 D84 E31 E52 G11
    Date: 2020–06
  24. By: Solikin M. Juhro (Bank Indonesia); Bernard N. Iyke (APAEA); Paresh K. Narayan (APAEA)
    Abstract: In this paper, we investigate the interdependence between monetary policy and asset prices in ASEAN-5 countries. Within country-specific models and proxying asset prices by the composite stock market indices of these countries, we find strong interdependence between monetary policy and asset prices. We show that real stock prices decline as interest rates increase due to a contractionary monetary policy shock. Interest rates rise in response to an increase in real stock prices induced by a stock price shock, although it does so after a couple of months after the shock. We find the interdependence of monetary policy and asset prices to hold up within panel models. The delay in interest rate response to stock price shocks originates from three of the ASEAN-5 countries, namely Indonesia, the Philippines, and Thailand.
    Keywords: Monetary Policy, Asset Prices, ASEAN-5 Countries
    JEL: E52 E58 E61 G12
    Date: 2020
  25. By: Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
    Abstract: We present a general framework apt to explain why central banks care about the co-existence of different transmission channels of monetary policy, and hence they endow themselves with different policy instruments. Within this framework, we then review and examine the key instruments adopted by the ECB to tackle the post-pandemic challenges, with a view to their consistency and efficacy. Finally, we make a few considerations about the future perspectives of monetary policy.
    Date: 2021
  26. By: Eric Monnet; Francois R. Velde
    Abstract: We review developments in the history of money, banking, and financial intermediation over the last twenty years. We focus on studies of financial development, including the role of regulation and the history of central banking. We also review the literature of banking and financial crises. This area has been largely unaffected by the so-called new econometric methods that seek to prove causality in reduced form settings. We discuss why historical macroeconomics is less amenable to such methods, discuss the underlying concepts of causality, and emphasize that models remain the backbone of our historical narratives.
    Keywords: historical macroeconomics; money; banking; financial intermediation
    JEL: N01 N10 N20
    Date: 2020–11–13
  27. By: Simplice A. Asongu (Yaounde, Cameroon); Peter Agyemang-Mintah (United Arab Emirate, UAE); 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
  28. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study complements the extant literature by assessing how enhancing supply factors of mobile technologies affect mobile money innovations for financial inclusion in developing countries. The mobile money innovation outcome variables are: mobile money accounts, the mobile phone used to send money and the mobile phone used to receive money. The mobile technology supply factors are: unique mobile subscription rate, mobile connectivity performance, mobile connectivity coverage and telecommunications (telecom) sector regulation. The empirical evidence is based on quadratic Tobit regressions and the following findings are established. There are Kuznets or inverted shaped nexuses between three of the four supply factors and mobile money innovations from which thresholds for complementary policies are provided as follows: (i) Unique adults’ mobile subscription rates of 128.500%, 121.500% and 77.750% for mobile money accounts, the mobile used to send money and the mobile used to receive money, respectively; (ii) the average share of the population covered by 2G, 3G and 4G mobile data networks of 61.250% and 51.833% for the mobile used to send money and the mobile used to receive money, respectively; and (iii) a telecom sector regulation index of 0.409, 0.283 and 0.283 for mobile money accounts, the mobile phone used to send money and the mobile phone used to receive money, respectively. Some complementary policies are discussed, because at the attendant thresholds, the engaged supply factors of mobile money technologies become necessary, but not sufficient conditions of mobile money innovations for financial inclusion.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2021–01
  29. By: Di Pace, Federico (Bank of England); Görtz, Christoph (University of Birmingham)
    Abstract: Using a structural vector autoregression, we document that a contractionary monetary policy shock triggers a decline in durable and non-durable outputs as well as a contraction in bank equity and a rise in the excess bond premium. The latter points to an important transmission channel of monetary policy via financial markets. It has long been recognized that a standard two-sector New Keynesian model, where durable goods prices are flexible and non-durable and services sticky, does not generate the empirically observed sectoral comovement across expenditure categories in response to a monetary policy shock. We show that introducing financial frictions in a two-sector New Keynesian model can resolve its disconnect with the empirical evidence: a monetary tightening generates not only comovement, but also a rise in credit spreads and a deterioration in bank equity.
    Keywords: Financial intermediation; sectoral comovement; monetary policy; financial frictions; credit spreads
    JEL: E22 E32 E44 E52
    Date: 2021–06–11
  30. By: Solikin M. Juhro (Bank Indonesia)
    Abstract: This paper is aimed to explore salient issues of central banking practices, especially on challenges confronted by central banks in the digital era, lessons learned, as well as their implications. As we have acknowledged, in the midst of major financial crises in the last two decades, central banks faced very complex policy challenges blighted with high uncertainty, all of which have changed the practical and theoretical perspectives of central bank policy. The complexity and uncertainty of issues faced by central banks have and will continue to evolve in line with the advancement of digital technology. Navigating central banking practices in the digital era, therefore, is a very challenges task that requires the central bank's ability to create breakthroughs and orchestrate policy innovations. While the central bank policy mix is still a viable strategy, central banks are required to operate beyond conventional wisdom, with novel practices. Optimizing the benefits of technological advances and becoming a relevant regulator in the digital era must anchor the central bank's strategy in the future.
    Keywords: Central Bank Policy, Digital Transformation, Central Bank Digital Currency
    JEL: E52 E58 O3
    Date: 2021
  31. By: Pierre L. Siklos; Martin Stefan
    Abstract: We simulate the impact on the nonbank liabilities of banks in a multiplex interbank environment arising from changes in currency exposure. Currency shocks as a source of financial contagion in the banking sector have not, so far, been considered. Our model considers two sources of contagion: shocks to nonbank assets and exchange rate shocks. Interbank loans can mature at different times. We demonstrate that a dominant currency can be a significant source of financial contagion. We also find evidence of asymmetries in losses stemming from large currency depreciations versus appreciations. A variety of scenarios are considered allowing for differences in the sparsity of the banking network, the relative size and number of banks, changes in nonbank assets and equity, the possibility of bank breakups, and the dominance of a particular currency. Policy implications are also drawn.
    Keywords: Systemic risk, financial contagion, interbank markets, multilayer networks
    Date: 2021–05
  32. By: Riboni, Alessandro; Ruge-Murcia, Francisco J.
    Abstract: Transcripts from the meetings of the Federal Open Market Committee (FOMC) show that the policy proposed by its chair is always adopted with a majority of votes and limited dissent. An interpretation of this observation is that the power of the chair vis-a-vis the other members is so large that the policy selected by the committee is basically that preferred by the chair. Instead, this paper argues that the observation that the chair's proposal is always approved is an equilibrium outcome: the proposal passes because it is designed to pass and it does not necessarily correspond to the policy preferred by the chair. We construct a model of inclusive voting where the chair has agenda-setting powers to make the proposal that is initially put to a vote but is subject to an acceptance constraint that incorporates the preferences of the median and the probability of counter-proposals. The model is estimated by the method of maximum likelihood using real-time data from FOMC meetings. Results for the full sample and sub-samples for each chair between 1974 and 2008 show that the data prefer a version of our model where the chair is moderately inclusive over a dictator model. Thus, the workings of the FOMC appear to be stable over time and no chair, regardless of personality and recognized ability, can deviate far from the median view.
    Keywords: agenda-setting; collective decision-making; Consensus; FOMC; Inclusive-voting
    Date: 2020–06
  33. By: Galí, Jordi
    Abstract: I develop a version of the New Keynesian model with insider-outsider labor markets and hysteresis that can account for the high persistence of European unemployment. I study the implications of that environment for the design of monetary policy. The optimal policy calls for strong emphasis on (un)employment stabilization which a standard interest rate rule fails to deliver, with the gap between the two increasing in the degree of hysteresis. Two simple targetiing rules are shown to approximate well the optimal policy. The properties of the model and effects of different policies are analyzed through the lens of the labor wedge and its components.
    Keywords: monetary policy tradeoffs; New Keynesian Model; Unemployment fluctuations; Wage Phillips Curve; Wage stickiness
    JEL: E24 E31 E32
    Date: 2020–06
  34. By: Mark M. Spiegel
    Abstract: This paper uses Call Report data to examine the impact of home country monetary policy on foreign bank subsidiary lending in the United States during the COVID-19 pandemic. Examining a large sample of foreign bank subsidiaries and domestic U.S. banks, we find that foreign bank lending growth was positively associated with both lower home country policy rates and negative home country rates. Our point estimates indicate that a one standard deviation decrease in home country policy rates was associated with a 3.5 percentage point increase in lending growth while negative home country policy rates added an additional 3.0 percentage points on average. Disparities in sensitivity to home country rates also exist by bank size, as large banks exhibited more responsiveness to home country policy rate levels, but were less responsive to negative policy rates. Easier home country policy rates are also found to impact negatively in growth in capital ratios and bank income, in keeping with expanded foreign subsidiary activity. However, income responses to negative home country rates are mixed, in a manner suggestive of sophisticated adjustment of global bank balance sheets to changes in relative home and host country monetary policy stances. Overall, our findings confirm that the bank lending channel for global monetary policy spillovers was active during the pandemic crisis.
    Keywords: Monetary policy; negative interest rates; banking; foreign subsidiaries; covid19
    JEL: G14 G18 G32
    Date: 2021–05–25
  35. By: Eduardo Dávila; Ansgar Walther
    Abstract: This paper studies leverage regulation and monetary policy when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal leverage regulation responds to arbitrary changes in investors' and creditors' beliefs and relate our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors and creditors, calls for tighter leverage regulation. Monetary policy should be tightened (loosened) in response to either investors' or creditors' optimism (pessimism).
    JEL: E52 E61 G21 G28
    Date: 2021–06
  36. By: Galí, Jordi
    Abstract: Under uncovered interest parity (UIP), the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials is invariant to the horizon at which the change is expected. Empirical evidence using US, euro area and UK data points to a substantial deviation from that invariance prediction: expectations of interest rate differentials in the near (distant) future are shown to have much larger (smaller) effects on the real exchange rate than is implied by UIP. Some possible explanations are discussed.
    Keywords: forward guidance puzzle; open economy New Keynesian model; unconventional monetary policies; uncovered interest rate parity
    JEL: E43 E58 F41
    Date: 2020–06
  37. By: Mohammed Ait Lahcen; Garth Baughman; Stanislav Rabinovich; Hugo van Buggenum
    Abstract: We argue that long-run inflation has nonlinear and state-dependent e ects on unemployment, output, and welfare. Using panel data from the OECD, we document three correlations. First, there is a positive long-run relationship between anticipated inflation and unemployment. Second, there is also a positive correlation between anticipated inflation and unemployment volatility. Third, the long-run inflation-unemployment relationship is not only positive, but also stronger when unemployment is higher. We show that these correlations arise in a standard monetary search model with two shocks - productivity and monetary - and frictions in labor and goods markets. Inflation lowers the surplus from a worker-firm match, in turn making it sensitive to productivity shocks or to further increases in inflation. We calibrate the model to match the US postwar labor market and monetary data and show that it is consistent with observed cross-country correlations. The model implies that the welfare cost of inflation is nonlinear in the level of inflation and is amplified by the presence of aggregate shocks.
    Keywords: Money, search, inflation, unemployment, unemployment volatility, fundamental surplus, product-labor market interaction
    JEL: E24 E30 E40 E50
    Date: 2021–06
  38. By: Joel M. David; David Zeke
    Abstract: We study the role of firm heterogeneity in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their degree of cyclicality, and hence, exposure to aggregate risk, leading to firm-specific risk premia that influence resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation, but where total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP. Inefficiencies distort this tradeoff and result in either excessive volatility or depressed output, implying a role for corrective policy. Embedding this mechanism into a workhorse New Keynesian model, we show that allocational considerations can strengthen the incentives for leaning against the wind, i.e., optimal policy is more strongly countercyclical than in an observationally equivalent economy that abstracts from heterogeneity. A quantitative exercise suggests that the losses from ignoring heterogeneity can be substantial, which stem largely from a less productive allocation of resources and so depressed TFP and output.
    Keywords: monetary policy; heterogeneous firms; misallocation; productivity
    JEL: D24 E23 E32 E44 E52 E62
    Date: 2021–01–13
  39. By: Thiago Revil T. Ferreira; Samer Shousha
    Abstract: We estimate that the supply of sovereign safe assets is a major driver of neutral interest rates--real rates consistent with both economic activity and inflation at their trends. We find this result using an empirical cross-country model with many economic drivers for the neutral rates of 11 advanced economies during the 1960-2019 period. The increasing availability of safe assets after 2008 has pushed up neutral rates, preventing them from continuing their previous decline because of other drivers. We also evaluate the "global savings glut" hypothesis. We estimate that since 1994 the global accumulation of international exchange reserves in safe assets has lowered the availability of these assets to the private sector and, thus pushed down neutral rates. Finally, we find that economies' neutral rates are subject to important global spillovers from developments in other economies.
    Keywords: Neutral interest rates; Safe assets; International reserves; Global savings glut
    JEL: E43 E21 E52
    Date: 2021–04–30
  40. By: Yun Jung Kim; Jing Zhang
    Abstract: Empirically, net capital inflows are pro-cyclical in developed countries and counter-cyclical in developing countries. That said, private inflows are pro-cyclical and public in flows are counter-cyclical in both groups of countries. The dominance of private (public) in flows in developed (developing) countries drives the difference in total net inflows. We rationalize these patterns using a dynamic stochastic two-sector model of a small open economy facing borrowing constraints. Private agents over-borrow because of the pecuniary externality arising from constraints. The government saves abroad to reduce aggregate debt, making the economy resilient to adverse shocks. Differences in borrowing constraints and shock processes across countries explain the empirical patterns of capital inflows.
    Keywords: reserves; pecuniary externality; cyclicality of net capital ows
    JEL: E44 F32 F34 F41
    Date: 2020–11–13
  41. By: Nicholas Z. Muller
    Abstract: This paper demonstrates how a central bank might operationalize an expanded role inclusive of managing risks from environmental pollution. The analysis introduces the green interest rate (rg) which depends on temporal changes in the pollution intensity of output. This policy instrument reallocates consumption from periods when output is pollution intensive to when output is cleaner. In economies on a cleaning-up path, rg exceeds r*. For those growing more polluted, rg is less than r*. In the U.S. economy from 1957 to 2016, rg exceeded r* by 50 basis points. Federal environmental policy reversed the orientation between rg and r*.
    JEL: E21 E43 E63 Q51 Q53 Q54 Q56 Q58
    Date: 2021–06
  42. By: Bacchetta, Philippe; Cordonier, Rachel; Merrouche, Ouarda
    Abstract: An unintended consequence of loose US monetary policy is the increase in currency risk exposure abroad. Using firm-level data on corporate bond issuances in 17 emerging market economies (EME) between 2003 and 2015, we find that EME companies are more likely to issue bonds in foreign currency when US interest rates are low. This increase occurs across the board, including for firms more vulnerable to foreign exchange exposure, and is particularly strong for bonds issued in local markets. Interestingly, capital controls on bond inflows significantly decrease the likelihood of issuing in foreign currency and can even eliminate the adverse impact of low US interest rates. In contrast, macroprudential foreign exchange regulations tend to increase foreign currency issuances of non-financial corporates, although this effect can be significantly reduced using capital controls.
    Keywords: capital controls; corporate bonds; currency risk; emerging markets; foreign currency
    JEL: E44 G21 G30
    Date: 2020–06
  43. By: Francesco Giovanardi (University of Cologne, Center for Macroeconomic Research); Matthias Kaldorf (University of Cologne, Center for Macroeconomic Research. Sibille-Hartmann-Str. 2-8, 50969 Cologne, Germany); Lucas Radke (University of Cologne, Center for Macroeconomic Research); Florian Wicknig (University of Cologne, Center for Macroeconomic Research)
    Abstract: We study the preferential treatment of green bonds in the Central Bank collateral framework as an environmental policy instrument. We propose a macroeconomic model with environmental and financial frictions, in which green and conventional entrepreneurs issue defaultable bonds to banks that use them as collateral. Collateral policy solves a financial stability trade-off between increasing bond issuance and subsidizing entrepreneur default risk. In a calibration to the Euro Area, optimal collateral policy features substantial preferential treatment, implying a green-conventional bond spread of 73bp. This increases the green bond share by 0.69 percentage points, while the green capital share increases by 0.32 percentage points, which in turn reduces pollution. The limited response of green investment is caused by higher risk taking of green entrepreneurs. When optimal Pigouvian taxation is available, collateral policy does not feature preferential treatment, but still improves welfare by addressing adverse effects of taxation on financial stability.
    Keywords: Green Investment, Central Bank Policy, Collateral Framework, Corporate De-fault Risk, Environmental Policy
    JEL: E44 E58 E63 Q58
    Date: 2021–06
  44. By: Rokas Kaminskas (Bank of Lithuania, ISM University of Management and Economics); Modestas Stukas (Bank of Lithuania); Linas Jurksas (Bank of Lithuania, Vilnius University)
    Abstract: This paper examines changing ECB communication and how it has impacted euro area financial markets over the past two decades. We applied a combination of topic modelling and sentiment analysis for over 2000 public ECB Executive Board member speeches, as well as over 200 ECB press conferences. Topic analysis revealed that the ECB’s main focus has shifted from strategy and objectives, at the inception of the euro area, to various policy actions during the global financial crisis and, more recently, to instruments and economic developments. Sentiment analysis showed an expected trend of a more negative communication tone during periods of turmoil and a gradual shift to a more dovish monetary policy tone over time. Regression analysis revealed that sentiment indices had the expected impact on financial market indicators, while press conferences showed substantially stronger effects than speeches.
    Keywords: ECB, speeches, press conferences, text analysis, sentiments, financial markets
    JEL: C80 E43 E44 E58 G12
    Date: 2021–05–11
  45. By: Danilo Cascaldi-Garcia; Thiago Revil T. Ferreira; Domenico Giannone; Michele Modugno
    Abstract: We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries--Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. We find that area wide and country-specific data provide informative signals to now-cast the economic conditions in the euro area and member countries. The model provides accurate predictions of economic conditions in real time over a period that covers the past three recessions.
    Keywords: Now-casting; Euro area; Dynamic factor models
    JEL: C33 C53 E37
    Date: 2021–03–30
  46. By: Vacca, Valerio Paolo; Bichlmeier, Fabian; Biraschi, Paolo; Boschi, Natalie; Álvarez, Antonio J. Bravo; Di Primio, Luciano; Ebner, André; Hoeretzeder, Silvia; Ballesteros, Elisa Llorente; Miani, Claudia; Ricci, Giacomo; Santioni, Raffaele; Schellerer, Stefan; Westman, Hanna
    Abstract: The crisis management framework for banks in the European Union (EU) requires the resolution authorities to identify the existence of a public interest to resolve an ailing bank, rather than to open normal insolvency proceedings (NIPs). The Public Interest Assessment (PIA) determines whether resolution objectives, including the safeguard of financial stability, can be better preserved using resolution tools than NIPs .This paper provides a contribution to the ongoing discussion on the implementation of the PIA, by presenting an analytical framework to quantify the potential impact on the real economy stemming from a bank’s failure under NIPs through the interruption of the lending activity (“credit channel”). The framework is harmonized across the jurisdictions belonging to the Banking Union and aims to improve the quantitative leg of the PIA, to be coupled with qualitative elements. In a first step, we quantify the potential credit shortfall faced by firms and households due to the abrupt closure of a bank. In a second step, the impact of the credit shortfall on real outcomes is estimated via a FAVAR model and via a micro-econometric model. Reference values are provided to assess the relevance of the estimated outcomes. The illustrative results show that such a harmonized approach can be applied across the Banking Union and to banks of heterogeneous size. In case of mid-sized banks, this common analytical framework could reduce the uncertainty regarding the extent to which the failure of the institution could have a negative impact to the real economy if the lending activity is interrupted as possibly the case under NIPs. JEL Classification: E58, G01, G21, G28
    Keywords: bank insolvency, bank lending, bank resolution, EU crisis management framework, public interest assessment
    Date: 2021–06
  47. By: Acharya, Viral V.; Crosignani, Matteo; Eisert, Tim; Eufinger, Christian
    Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, "zombie credit" can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in ...
    Keywords: Disinflation; eurozone crisis; Firm productivity; Under-capitalized Banks; zombie lending
    JEL: E31 E44 G21
    Date: 2020–06
  48. By: Mario J. Crucini; Mototsugu Shintani; Takayuki Tsuruga
    Abstract: At the aggregate level, the evidence that deviations from purchasing power parity (PPP) are too persistent to be explained solely by nominal rigidities has long been a puzzle (Rogoff, 1996). Another puzzle from the micro price evidence of the law of one price (LOP), which is the basic building block of PPP, is that LOP deviations are less persistent than PPP deviations. To reconcile the empirical evidence, we adapt the model of behavioral inattention in Gabaix (2014, 2020) to a simple two-country sticky-price model. We propose a simple test of behavioral inattention and find strong evidence in its favor using micro price data from US and Canadian cities. Calibrating behavioral inattention with our estimates, we show that our model reconciles the two puzzles relating to the PPP and LOP. First, the PPP deviations are more than twice as persistent as PPP deviations explained only by sticky prices. Second, the LOP deviations decrease to less than twothirds of the PPP deviations in the degree of persistence.
    Keywords: Real exchange rates, Law of one price, Rational inattention, Trade cost
    JEL: E31 F31 D40
    Date: 2021–04
  49. By: Gandal, Neil; Gans, Joshua; Haeringer, Guillaume; Halaburda, Hanna
    Abstract: Since its launch in 2009 much has been written about Bitcoin, cryptocurrencies and blockchains. While the discussions initially took place mostly on blogs and other popular media, we now are witnessing the emergence of a growing body of rigorous academic research on these topics. By the nature of the phenomenon analyzed, this research spans many academic disciplines including macroeconomics, law and economics and computer science. This survey focuses on the microeconomics of cryptocurrencies themselves. What drives their supply, demand, trading price and competition amongst them. This literature has been emerging over the past decade and the purpose of this paper is to summarize its main findings so as to establish a base upon which future research can be conducted.
    Keywords: Cryptocurrencies Bitcoin Blockchain
    Date: 2020–06

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