nep-mon New Economics Papers
on Monetary Economics
Issue of 2021‒09‒20
28 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Monetary Policy in in Russia in 2020 By Bozhechkova Alexandra; Trunin Pavel
  2. The cost channel of monetary policy: the case of the United States in the period 1959-2018 By Maria Chiara Cucciniello; Matteo Deleidi; Enrico Sergio Levrero
  3. Asymmetric monetary policy rules for the euro area and the US By Maih, Junior; Mazelis, Falk; Motto, Roberto; Ristiniemi, Annukka
  4. Trend inflation, asset prices and monetary policy By Kengo Nutahara
  5. Monetary Policy is not about Interest Rates; the Liquidity Effect and the Fisher Effect By Greenwood, John
  6. Monetary and fiscal complementarity in the Covid-19 pandemic By Chadha, Jagjit S.; Corrado, Luisa; Meaning, Jack; Schuler, Tobias
  7. The Impact of Monetary Conditions on Bank Lending to Households By Gyozo Gyongyosi; Steven Ongena; Ibolya Schindele
  8. The Federal Reserve’s Revised Monetary Policy Strategy and Its First Year of Practice By Loretta J. Mester
  9. Macroeconomic stabilisation and monetary policy effectiveness in a low-interest-rate environment By Coenen, Günter; Montes-Galdón, Carlos; Schmidt, Sebastian
  10. Monetary and macroprudential policy: The multiplier effects of cooperation. By Federico Bassi; Andrea Boitani
  11. ECB euro liquidity lines By Silvia Albrizio; Iván Kataryniuk; Luis Molina; Jan Schäfer
  12. The Effects of Money-financed Fiscal Stimulus in a Small Open Economy By Okano, Eiji; Eguchi, Masataka
  13. The Mortgage Cash Flow Channel of Monetary Policy Transmission: A Tale of Two Countries By Daniel H. Cooper; Vaishali Garga; Maria Jose Luengo-Prado
  14. Using xtbreak to study the impacts of European Central Bank announcements on sovereign borrowing By Natalia Poiatti
  15. The impact of heterogeneous unconventional monetary policies on the expectations of market crashes By Irma Alonso; Pedro Serrano; Antoni Vaello-Sebastià
  16. Human frictions in the transmission of economic policy By D’Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  17. Holding the Economy by the Tail: Analysis of Short- and Long-run Macroeconomic Risks By Michal Franta; Jan Libich
  18. Shadow Banks and the Collateral Multiplier By Thomas R. Michl; Hyun Woong Park
  19. Optimal capital ratios for banks in the euro area By Beau Soederhuizen; Bert Kramer; Harro van Heuvelen; Rob Luginbuhl
  20. What Can Stockouts Tell Us About Inflation? Evidence from Online Micro Data By Alberto Cavallo; Oleksiy Kryvtsov
  21. Inflation in developing economies By Peter Skott
  22. Measuring Inflation: Criticism and Solution By Laczó, Ferenc
  24. Central Banks' Intervention in Exchange Rate Markets During the "Classical" Gold Standard: Italy 1880-1913 By Paolo Di Martino
  25. The ideological shade of the constitutional order: public law and political economy in the Eurozone By Lokdam, Hjalte
  26. Wages and inflation in Mexican manufacturing. A two-period comparison: 1994-2003 and 2007-2016 By Carbajal-De-Nova, Carolina
  27. The multiplier effect of convertible local currencies : case study on two French schemes By Oriane Lafuente-Sampietro
  28. Payment Habits During COVID-19: Evidence from High-Frequency Transaction Data By Tatjana Dahlhaus; Angelika Welte

  1. By: Bozhechkova Alexandra (Gaidar Institute for Economic Policy); Trunin Pavel (Gaidar Institute for Economic Policy)
    Abstract: In 2020, the world economy was faced with a large-scale crisis caused by the coronavirus pandemic, a worsening situation in the global oil market, increasing global uncertainty, and capital outflows from emerging markets. The crisis phenomena were experienced, to a varying degree, by every sector of the economy and required the implementation of a set of urgent monetary policy measures. The Bank of Russia’s switchover to monetary policy easing became its key decision aimed at sustaining aggregate demand: in 2020, the regulator cut the key rate four times, from 6.25% per annum in February to 4.25% per annum in July, thus sinking it to its historic low.
    Keywords: Russian economy, monetary policy, money market, exchange rate, inflation, balance of payments
    JEL: E31 E43 E44 E51 E52 E58
    Date: 2021
  2. By: Maria Chiara Cucciniello (Roma Tre University); Matteo Deleidi (Roma Tre University); Enrico Sergio Levrero
    Abstract: In light of the literature on the ‘price puzzle’, this paper shows that a positive effect of a tightening of monetary policy on the level of prices should be considered a normal phenomenon rather than an ‘anomaly’ or a ‘specific regime phenomenon’ connected to passive behaviour of the Central Bank in response to changes in the inflation rate. In order to assess this effect of monetary policy on the level of prices, we estimate SVAR models based on US monthly data for the period 1959-2018. Alternative measures of price and inflation expectations are also taken into consideration to avoid feasible spurious correlation. Finally, all selected models are estimated along four different sub-samples to consider different monetary policy regimes. Our findings show that the ‘price puzzle’ exists irrespective of both the passive (active) behaviour of the Central Bank and the inclusion of price expectations.
    Keywords: Price Puzzle, Structural Vector Autoregressions, United States
    JEL: B22 E31 E43 E44 E52
    Date: 2021–07
  3. By: Maih, Junior; Mazelis, Falk; Motto, Roberto; Ristiniemi, Annukka
    Abstract: We analyse the implications of asymmetric monetary policy rules by estimating Markov-switching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB’s response to inflation was more forceful when inflation was above 2% than below 2%. Since then, the ECB’s policy can be characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed’s policy, which has responded more strongly in times of crisis. We compute an optimal simple rule for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades. JEL Classification: E52, E58, E31, E32
    Keywords: Bayesian Estimation, effective lower bound, Inflation targeting, Markov-switching DSGE, optimal monetary policy
    Date: 2021–09
  4. By: Kengo Nutahara
    Abstract: The main objective of this paper is to investigate monetary policy response to asset price in a sticky price economy where the trend inflation rate is non-zero. We find that monetary policy response to asset price is helpful for achieving equilibrium determinacy if the trend inflation is negative (i.e., deflation) and sufficiently low. If this is not the case, monetary policy response to asset price becomes a source of equilibrium indeterminacy. We also find that monetary policy response to asset price can be helpful for equilibrium determinacy even if the trend inflation is positive in the case where the nominal wage is also sticky, and the parameter values are consistent with recent micro evidence.
    Date: 2021–06
  5. By: Greenwood, John (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The purpose of this paper is to clarify the relation between money and interest rates. In section 1, the author examines the empirical validity of Keynes’s claims for his liquidity preference theory by looking at the relation between changes in interest rates and changes in the quantity of money. In section 2, the author considers Irving Fisher’s findings. Fisher, whose studies had mostly preceded Keynes, had shown that over any longer-term horizon the relation between money and interest rates was exactly the reverse of Keynes’ hypothesis of short-term liquidity preference. A reconciliation is proposed that treats Keynes’ theory as a short-term, liquidity effect, and Fisher’s results, which incorporate the effect of inflation or inflation expectations, as the longer-term determinant of interest rates. In section 3, the author applies the resulting combined theory of the relation between money and interest rates to five case studies in recent decades: two from Japan, and one each from the Eurozone, the U.K. and the U.S. The conclusion is that interest rates are a highly misleading guide to the stance of monetary policy; it is invariably better to rely on the growth rate of a broad definition of money when assessing the stance of monetary policy
    Date: 2021–09
  6. By: Chadha, Jagjit S.; Corrado, Luisa; Meaning, Jack; Schuler, Tobias
    Abstract: In response to the coronavirus (Covid-19) pandemic, there has been a complementary approach to monetary and fiscal policy in the United States with the Federal Reserve System purchasing extraordinary quantities of securities and the government running a deficit of some 17% of projected GDP. The Federal Reserve pushed the discount rate close to zero and stabilised financial markets with emergency liquidity provided through a new open-ended long-term asset purchase programme. To capture the interventions, we develop a model in which the central bank uses reserves to buy much of the huge issuance of government bonds and this offsets the impact of shutdowns and lockdowns in the real economy. We show that these actions reduced lending costs and amplified the impact of supportive fiscal policies. We then run a counterfactual analysis which suggests that if the Federal Reserve had not intervened to such a degree, the economy may have experienced a significantly deeper contraction as a result from the Covid-19 pandemic. JEL Classification: E31, E40, E51
    Keywords: Covid-19, monetary-fiscal interaction, non-conventional monetary policy, quantitative easing
    Date: 2021–09
  7. By: Gyozo Gyongyosi (Leibniz Institute for Financial Research SAFE; Kiel Institute for the World Economy); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Ibolya Schindele (BI Norwegian Business School; Central Bank of Hungary)
    Abstract: We study how monetary conditions change the supply by banks of mortgage credit to households. We exploit the widespread presence of foreign currency mortgages in Hungary and study this country`s comprehensive credit registry. Changes in monetary conditions not only affect the supply of credit in volume, but also in its currency and risk composition. Hence, we establish a “bank‐lending‐to‐households” channel of monetary policy that is heterogeneous. While the availability of foreign currency mortgages weakens the domestic bank‐lending channel overall, weakly capitalized domestic banks relying on swap transactions for their foreign currency lending are more sensitive to changes in monetary conditions.
    Keywords: Bank balance‐sheet channel, household lending, monetary policy, foreign currency lending.
    JEL: E51 F3 G21
    Date: 2021–09
  8. By: Loretta J. Mester
    Abstract: The conference’s theme of new avenues for monetary policy is particularly relevant given the economic challenges presented by the global pandemic. But even before the pandemic hit, structural changes to the economy, in particular, lower estimates of the neutral real interest rate, presented challenges for monetary policymakers and suggested that new thinking was needed to ensure achievement of our monetary policy goals. Recently, both the Federal Reserve and the European Central Bank (ECB) have undertaken reviews of their monetary policy frameworks to determine whether changes were needed to increase the effectiveness of their policy strategies. The ECB released the outcome of its review in July. The Fed’s revised strategy is now about a year old. Today, I will discuss the Fed’s revised strategy, how the Federal Open Market Committee (FOMC) has put the strategy into practice, and based on that experience, what I believe are areas that would benefit from further clarification. As always, the views I will present are my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.
    Date: 2021–09–10
  9. By: Coenen, Günter; Montes-Galdón, Carlos; Schmidt, Sebastian
    Abstract: The secular decline in the equilibrium real interest rate observed over the past decades has materially limited the room for policy-rate reductions in recessions, and has led to a marked increase in the incidence of episodes where policy rates are likely to be at, or near, the effective lower bound on nominal interest rates. Using the ECB's New Area-Wide Model, we show that, if unaddressed, the effective lower bound can cause substantial costs in terms of worsened macroeconomic performance, as re ected in negative biases in in ation and economic activity, as well as heightened macroeconomic volatility. These costs can be mitigated by the use of nonstandard instruments, notably the joint use of interest-rate forward guidance and large-scale asset purchases. When considering alternatives to in ation targeting, wefind that make-up strategies such as price-level targeting and average-in ation targeting can, if they are well-understood by the private sector, largely undo the negative biases and heightened volatility induced by the effective lower bound.
    Keywords: Effective lower bound,monetary policy,asset purchases,forward guidance,make-up strategies
    JEL: E31 E32 E37 E52 E58
    Date: 2021
  10. By: Federico Bassi; Andrea Boitani (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: A BMW model is augmented with a credit market affected by banks’ balance sheet and used to assess the dynamic performance of an economy in the face of demand and financial shocks under different assumptions about the interactions between monetary and macroprudential policy. We show that the regulatory bank’s capital requirement has a multiplier effect that interferes with monetary policy, thus influencing the credit market and the output gap, and this multiplier effect varies according to the institutional arrangements in which macroprudential and monetary policies are embedded. In particular, we find that cooperation between monetary policy and macroprudential policy delivers the best overall stabilization outcomes in the face of both negative demand and bank equity shocks, if such shocks are not highly persistent. As shock persistence increases, non-cooperation or a simple leaning against the wind monetary policy outperform cooperation. However, adding countercyclical capital buffers in the macroprudential toolkit reinstates the original ranking of institutional arrangements with cooperation dominating overall.
    Keywords: Financial Frictions, Monetary Policy, Macroprudential Policy, Policy Coordination.
    JEL: E44 E52 E58 E61 G21 G28
    Date: 2021–09
  11. By: Silvia Albrizio (Banco de España); Iván Kataryniuk (Banco de España); Luis Molina (Banco de España); Jan Schäfer (CEMFI)
    Abstract: The use of central bank liquidity lines has gained momentum since the global financial crisis in order to provide liquidity in foreign exchange markets, while at the same time preventing threats to financial stability and negative spillbacks. US dollar swap lines are well studied, but much less is known about the effects of liquidity lines in euros. We use a difference-in-differences strategy to show that the announcement of ECB euro liquidity lines has a direct positive signalling effect since the premium paid by foreign agents to borrow euros in FX markets decreases up to 76 basis points relative to currencies not covered by these facilities. Additionally, the paper provides suggestive evidence that these facilities generate positive spillbacks to the euro area since domestic bank equity prices increase by 6.7% in euro area countries highly exposed via banking linkages to countries whose currencies are targeted by liquidity lines.
    Keywords: liquidity facilities, central banks swap and repo lines, spillbacks
    JEL: E44 E58 F33 G15
    Date: 2021–08
  12. By: Okano, Eiji; Eguchi, Masataka
    Abstract: In this paper, we analyze the effects of money-financed (MF) fiscal stimulus and compare them with those resulting from a conventional debt-financed (DF) fiscal stimulus in a small open economy. We find that in normal times which is a period when a zero lower bound (ZLB) on the nominal interest rate is not applicable, MF fiscal stimulus is effective in increasing output. In a liquidity trap where the ZLB is applicable, even though the decrease in both consumer price index (CPI) inflation and output is more severe than in a closed economy when there is no fiscal response, MF fiscal stimulus is effective in stabilizing both. Accordingly, we show that even in an imperfect pass-through environment including a liquidity trap, an increase in government expenditure under MF fiscal stimulus is effective. In contrast, our policy implications concerning an increase in government expenditure under DF fiscal stimulus lie opposite to Gali, Jordi (2020), “The Effects of a Money-financed Fiscal Stimulus,” Journal of Monetary Economics, 115, 1-19, assuming a closed economy. In normal times, an increase in government expenditure under the DF scheme in a small open economy is more effective than in a closed economy, although Gali (2020) argues that it is much less effective. In a liquidity trap, an increase in government expenditure under the DF scheme is less effective, also in contrast to Gali (2020). We find that even in an imperfect pass-through environment, an increase in government expenditure under DF fiscal stimulus is not effective. Thus, in a small open economy, MF fiscal stimulus is not always essential in normal times, and in a liquidity trap, MF fiscal stimulus is more important than what Gali (2020) suggests because DF fiscal stimulus is not effective, irrespective of nominal exchange rate pass-through.
    Keywords: Fiscal Stimulus; Money Financing; Debt Financing; Zero Lower Bound; Imperfect Pass-through
    JEL: E31 E32 E52 E62 F41
  13. By: Daniel H. Cooper; Vaishali Garga; Maria Jose Luengo-Prado
    Abstract: We study the mortgage cash flow channel of monetary policy transmission under fixed-rate mortgage (FRM) versus adjustable-rate mortgage (ARM) regimes by comparing the United States with primarily long-term FRMs and Spain with primarily ARMs that automatically reset annually. We find a robust transmission of mortgage rate changes to spending in both countries but surprisingly a larger effect in the United States—and provide two explanations for this finding. First, there are channels of transmission other than the mortgage cash flow effect since other interest rates co-move with the mortgage rate. Second, while mortgage resets in Spain are automatic and typically small, mortgagors in the United States must actively refinance to lock in lower rates. As a result, the mortgage cash flow effect in Spain is homogeneous across mortgagors and symmetric for rate increases and decreases, whereas in the United States the effect is largest when rates decline, especially for households identified as likely refinancers.
    Keywords: consumption; intertemporal household choice; monetary policy transmission; adjustable-rate mortgages; fixed-rate mortgages
    JEL: D15 E21 E52
    Date: 2021–08–01
  14. By: Natalia Poiatti (Instituto de Relações Internacionais - USP)
    Abstract: This paper investigates how the announcements of the European Central Bank have impacted the cost of sovereign borrowing in central and peripheral European countries. Using the xtbreak command (Ditzen, Karavias and Westerlund, 2021) in Stata, we tested whether the variations of European sovereign spreads can be explained by economic fundamentals in a model that allows for two structural breaks: the first, when investors realized the fiscal sustainability of the EMU should be understood in a decentralized fashion, when the ECB announced it would not bail out Greece; the second, when the ECB realized the existence of the euro was in check and announced it would be able to financial assist the countries in financial trouble. We show that a model that allows for structural breaks after the ECB announcements can explain most of the variations in European sovereign spreads.
    Date: 2021–09–12
  15. By: Irma Alonso (Banco de España); Pedro Serrano (Universidad Carlos III de Madrid); Antoni Vaello-Sebastià (Universitat des Illes Balears)
    Abstract: This article analyzes the impact of the unconventional monetary policies (UMPs) of four major central banks (the Fed, ECB, BoE and BOJ) on the probability of future market crashes. We exploit the heterogeneity of different UMP actions to disentangle their influence on reducing the ex ante perception of extreme events (tail risks) using the information contained in risk-neutral densities from the most liquid stock index options. The empirical findings show that the announcement of UMPs reduces the risk-neutral probability of extreme events across various horizons and thresholds, supporting the hypothesis of the risk-taking channel. Interestingly, foreign UMP actions also prove to be significant variables affecting domestic tail risks, mainly at longer horizons. These results reveal a cross-border effect of foreign UMPs on domestic tail risks. Finally, the dynamics of the UMPs are captured by a structural model that confirms a transitory impact of UMPs on market tail risk perceptions.
    Keywords: unconventional monetary policy, risk-neutral density, tail risk, event study, SVAR
    JEL: E44 E58 G01 G10 G14
    Date: 2021–08
  16. By: D’Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
    Abstract: Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in income, formal education levels, economic expectations, and a large set of registry-based demographics do not explain these facts. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector and might imply redistribution from low- to high-cognitive ability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2021–09–09
  17. By: Michal Franta; Jan Libich
    Abstract: We put forward a novel macro-financial empirical modelling framework that can examine the tails of distributions of macroeconomic variables and the implied risks. It does so without quantile regression, also allowing for non-normal distributions. Besides methodological innovations, the framework offers a number of relevant insights into the effects of monetary and macroprudential policy on downside macroeconomic risk. This is both from the short-run perspective and from the long-run perspective, which has been remained unexamined in the existing Macro-at-Risk literature. In particular, we estimate the conditional and unconditional US output growth distribution and investigate the evolution of its first four moments. The short-run analysis finds that monetary policy and financial shocks render the conditional output growth distribution asymmetric, and affect downside risk over and above their impact on the conditional mean that policymakers routinely focus on. The long-run analysis indicates, among other things, that US output growth left-tail risk showed a general downward trend in the two decades preceding the Global Financial Crisis, but has started rising in recent years. Our examination strongly points to post-2008 unconventional monetary policies (quantitative easing) as a potential source of elevated long-run downside tail risk.
    Keywords: Downside tail risk, growth-at-risk, macroeconomic policy, macro-financial modeling, non-normal distribution, threshold VAR, US output growth
    JEL: C53 C54 E32
    Date: 2021–09
  18. By: Thomas R. Michl (Colgate University, Department of Economics); Hyun Woong Park (Denison University, Department of Economics)
    Abstract: With an emphasis on contributing to macroeconomic pedagogy we examine the collateral multiplier by comparing it to the traditional money multiplier in a simplified framework of traditional banking and shadow banking in which government bonds are the core assets. While the money multiplier is a measure of the ability of the banking system to intermediate sovereign debt by creating deposits, the collateral multiplier is a measure of the shadow banking system’s ability to inter- mediate sovereign debt by creating shadow money. It also measures the degree of re-use of sovereign debt as collateral. In this setup, the collateral multiplier is defined as the ratio between dealer banks’ matched book repo activity relative to their trading book. Using the New York Fed’s Primary Dealer Statistics data, we empirically estimate the collateral multiplier for U.S. Treasury repo collateral. Our model and empirical results shed light on the transmission mechanisms of monetary policy channeled through shadow banks and on the U.S. Treasuries market turmoil induced by COVID-19 in March 2020.
    Keywords: shadow banks, collateral multiplier, rehypothecation, Treasury bond, repo.
    JEL: A2 E51
    Date: 2021
  19. By: Beau Soederhuizen (CPB Netherlands Bureau for Economic Policy Analysis); Bert Kramer (CPB Netherlands Bureau for Economic Policy Analysis); Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Rob Luginbuhl (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Capital buffers help banks to absorb financial shocks. This reduces the risk of a banking crisis. However, on the other hand capital requirements for banks can also lead to social costs, as rising financing costs can lead to higher interest rates for customers. In this research we make an exploratory analysis of the costs and benefits of capital buffers for groups of European countries. In this study, we estimate the optimal level of capital for banks in the euro area. As far as we know, we are the first to investigate this for the euro area. The optimal level results from a trade-off between the social costs and benefits of capital requirements. Depending on technical assumptions, we find an optimal capital buffer between 15 and 30 percent. Despite this considerable spread, the estimated optimum is in all cases higher than the current minimum requirements of Basel III. We also find significant heterogeneity in the optimum between euro area Member States. For Member States with a more stable economy and a banking sector that can easily attract funding we find lower optimal capital ratios.
    JEL: C33 C54 E44 G15 G21
    Date: 2021–09
  20. By: Alberto Cavallo; Oleksiy Kryvtsov
    Abstract: We use a detailed micro dataset on product availability to construct a direct high-frequency measure of consumer product shortages during the 2020–2021 pandemic. We document a widespread multi-fold rise in shortages in nearly all sectors early in the pandemic. Over time, the composition of shortages evolved from many temporary stockouts to mostly discontinued products, concentrated in fewer sectors. We show that product shortages have significant but transitory inflationary effects, and that these effects can be associated with elevated cost of replenishing inventories.
    JEL: D22 E31 E37
    Date: 2021–09
  21. By: Peter Skott (Department of Economics, University of Massachusetts Amherst)
    Abstract: Phillips curves and natural rates of unemployment provide a poor foundation for analyzing inflation in developing economies. Structuralist alternatives have focused on distributional conflict and cross-sectoral interactions, but if the distributional claims are exogenous, the theory has formal similarities with mainstream analysis, generating a natural rate of underemployment. This paper outlines a modified structuralist model in which historically determined distributional claims eliminate this natural rate of underemployment. Economic development and structural transformation are not blocked by immutable distributional claims, but shocks to relative incomes can produce explosive inflation.
    Keywords: Phillips curve, underemployment, distributional conáict, structuralist model
    JEL: E31 O23
    Date: 2021
  22. By: Laczó, Ferenc
    Abstract: In this study the concept of commodities is formulated according to the utility theory; following the principle of price elasticity of demand, differences of uncompensated and compensated price changes will be clearly interpreted; as the uncompensated and compensated price changes have different averaging properties, so two different CPI formulas need to be defined; arbitrary price changes are broken down into uncompensated and compensated price change to obtain a complete, dual CPI formula.
    Keywords: Economic Value of a Commodity; Uncompensated vs. Compensated Price Change; Common Units in Measurements; Dual CPI Formula; Supply-Driven and Demand-Driven Economy
    JEL: E31
    Date: 2021–06–30
  23. By: Juan Acosta; Beatrice Cherrier (CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we build on data on officials of the Federal Reserve System, oral history repositories, and hitherto underresearched archival sources to unpack the tortuous path toward crafting an institutional and intellectual space for postwar economic analysis within the Board of Governors of the Federal Reserve System. We show that growing attention to new macroeconomic research was a reaction to both mounting external criticisms against the Fed's decision-making process and the spread of new macroeconomic theories and econometric techniques. We argue that the rise of the number of PhD economists working at the Fed is a symptom rather than a cause of this transformation. Key to our story are a handful of economists from the Board of Governors' Division of Research and Statistics (DRS) who did not hold a PhD but envisioned their role as going beyond mere data accumulation and got involved in large-scale macroeconometric model building. We conclude that the divide between PhD and non-PhD economists may not be fully relevant to understand both the shift in the type of economics practiced at the Fed and the uses of this knowledge in the decision-making process. Equally important was the rift between different styles of economic analysis.
    Date: 2021
  24. By: Paolo Di Martino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: This paper reconstructs the history of direct interventions to support the exchange rate performed by Italian banks of issue between 1880 and 1913. The paper, based on coeval documents, shows how in Italy "central banks" played an active role over the whole period targeting, in particular, the price of public bonds traded internationally as the difference between this price and the one in domestic markets could activate arbitrages able to influence the exchange rate. The paper shows that the end- result of these interventions depended on the interconnection between three variables: the volume of Italian bonds traded internationally, the amount of forex reserves held by "central banks", and the trust in the Italian public finances.
    Date: 2021–09
  25. By: Lokdam, Hjalte
    Abstract: This paper argues that the Economic and Monetary Union (EMU) created at Maastricht conformed to the neoliberal theory of interstate federalism in seeking to constitute structural conditions that circumscribed the effective exercise of activist public authority at both the Member State and European level. A response to a perceived ‘crisis of governability,’ it was designed to address the problem of excessive, and ineffective, governmental interventions in economic matters. By separating monetary and fiscal policy, the EMU ensured that no single public authority at the Member State or European level could control all the main levers of economic government. The Eurozone Crisis challenged this construct by emphasising the need for a coherent and effective exercise of public authority. The problem was thus no longer an excess of government but the absence of effective governmental authority for the EMU as a whole. Eurozone Crisis reforms introduced a greater scope for federal interventions in the domestic affairs of Member States and such reforms have elicited a new constitutional imaginary, expressed by European elites, that emphasises the need to generate ‘European sovereignty.’ This imaginary departs radically from the original EMU by foreseeing an omnicompetent European governmental apparatus that is able to intervene in, and control, economic developments across the Union in accordance with political objectives. The constitutional imaginary of the EMU can thus no longer meaningfully be called neoliberal. The early response to the COVID-19 Crisis, furthermore, highlights that the objectives pursued under the reformed EMU may depart from the set of policies traditionally associated with neoliberalism. What it should be called instead, however, remains unclear.
    Keywords: Economic and Monetary Union; Eurozone Crisis; neoliberalism; federalism; economic constitution; law and political economy
    JEL: F3 G3
    Date: 2021–01–13
  26. By: Carbajal-De-Nova, Carolina
    Abstract: The effect of wages on price inflation has been a foremost subject in economics. This paper evaluates the effect in Mexican manufacturing for two sets of periods. The first one, from 1994 to 2003, covers an initial period of the North American Free Trade Agreement (NAFTA). The second period encompass from 2007 to 2016, comprising the Great Recession. For both periods, data is available on a monthly frequency. A first equation deals with wages and bilateral nominal exchange rate impacts on the producer price inflation. A second equation measures the effect of this last variable, besides a bilateral nominal exchange rate and the wage effect on consumer price inflation. These equations follow Pujol and Griffiths (1997), using an error correction model and Granger causality tests. The results for the mentioned periods expose those wages have an almost null effect in both the inflation of producer and consumer prices.
    Keywords: wages; consumer price inflation; producer price inflation; bilateral nominal exchange rate.
    JEL: J00 J3
    Date: 2021–02–20
  27. By: Oriane Lafuente-Sampietro (TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Convertible local currencies are alternative monetary instruments issued by groups of citizens to circulate in a given territory. They are used by businesses and citizens who accept it as means of payments constituting, hence, a monetary community. Their impacts on economic activity are mainly related to their circulation within the user community. Businesses that have received local currency as payment must spend it with other members. A local currency, thus, acts as a constraint favoring the development of new commercial relations in the network and increasing the demand among local businesses involved in the scheme. In this article, we model the income circulation between convertible currencies users as a local multiplier, called the convertible local currency multiplier. By using the Local Multiplier 3 empirical approach (Sacks, 2002) on two convertible currencies transactions data, we compute an indicator summarizing the income generated for the monetary community by the change and expense of euros into a local currency. This new indicator enables not only consumers to estimate the impact of their actual consumption in local currency, but also potential public decision-makers to know the total effect of their expenses when they use local currency on their territory to finance some of their policies. For example, this indicator could be used to measure the direct and indirect effects of a subsidy paid in local currency to institutions, businesses or households. The computed multiplier is greater than two for both currencies, which is in the higher range of LM3 estimated in the literature.
    Keywords: Local multiplier,Local currency,Multiplier economics,Multiplicateur local,Monnaie locale alternative,Monnaie locale complémentaire
    Date: 2021–06–01
  28. By: Tatjana Dahlhaus; Angelika Welte
    Abstract: We investigate how the COVID-19 pandemic has changed consumers’ payments habits in Canada. We rely on high-frequency data on cash withdrawals and debit card transactions from Interac Corp. and Canada’s Automated Clearing Settlement System. We construct daily measures of payment habits reflecting cash usage, average transaction values, and the share of transactions in which the customer or card holder and the acquiring machine (ATM or POS) are of the same bank. Using simple dummy regressions and local projection models, we assess how these indicators of payment habits have changed with the evolution of the COVID-19 pandemic. We find evidence that during the pandemic consumers adjusted their behaviour by avoiding frequent trips for cash withdrawals and point-of-sale purchases and making fewer transactions for higher amounts. They also made smaller-value cash withdrawals compared with the value of card payments, which could reflect a reduced use of cash for point-of-sale transactions. Consumers also made relatively more withdrawals from ATMs that are linked to their financial institution (on-us transactions). Finally, we highlight that estimates of economic activity based on card data alone could be biased if shifts in payment habits are not taken into account. We estimate that debit card payments might have overstated consumer expenditure growth by up to 7 percentage points over the course of the pandemic.
    Keywords: Coronavirus disease (COVID-19); Domestic demand and components; Payment clearing and settlement systems; Recent economic and financial developments
    JEL: C22 C55 D12 E21 E42 E52
    Date: 2021–09

This nep-mon issue is ©2021 by Bernd Hayo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.