nep-mon New Economics Papers
on Monetary Economics
Issue of 2021‒10‒18
thirty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Central bank digital currency in Nigeria: opportunities and risks By Ozili, Peterson K
  2. Preventive monetary and macroprudential policy response to anticipated shocks to financial stability By Konstantin Styrin; Alexander Tishin
  3. China’s Transition to a Digital Currency: Does It Threaten Dollarization? By Aysan, Ahmet Faruk; Kayani, Farrukh Nawaz
  4. Do inflation expectations improve model-based inflation forecasts? By Bańbura, Marta; Leiva-Leon, Danilo; Menz, Jan-Oliver
  5. The Co-Movement between Foreign Reserves, Economic Growth and Money Supply: Evidence from the WAMZ Countries By Joof, Foday
  6. Theoretically proposed policy instrument to address the negative effect of inflation inflow into positive macroeconomic growth: the case study of the Sierra Leone economy By Tweneboah Senzu, Emmanuel
  7. Sudden stops and asset purchase programmes in the euro area By Fabiani, Josefina; Fidora, Michael; Setzer, Ralph; Westphal, Andreas; Zorell, Nico
  8. Investment funds, risk-taking, and monetary policy in the euro area By Giuzio, Margherita; Kaufmann, Christoph; Ryan, Ellen; Cappiello, Lorenzo
  9. The time-varying evolution of inflation risks By Korobilis, Dimitris; Landau, Bettina; Musso, Alberto; Phella, Anthoulla
  10. Forward Guidance in an Advanced Small Open Economy in the Effective Lower Bound By Charlotte André Marine; Guido Traficante
  11. Law, mobile money drivers and mobile money innovations in developing countries By Asongu, Simplice; Agyemang-Mintah, Peter; Nting, Rexon
  12. Banks’ interest rate setting and transitions between liquidity surplus and deficit By Tatiana Grishina; Alexey Ponomarenko
  13. Macroeconomic policy under a managed float: a simple integrated framework By Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
  14. Unconventional monetary policy, funding expectations, and firm decisions By Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F.
  15. Mobile technology supply factors and mobile money innovation: Thresholds for complementary policies By Asongu, Simplice; Odhiambo, Nicholas
  16. Trade in coinage, Gresham's Law, and the drive to monetary unification: the Holy Roman Empire, 1519-59 By Volckart, Oliver
  17. The future of the Central Bank and its autonomy in the Chilean Constitutional Convention By Castro Azócar, Felipe
  18. A proposal to use two interest rates in the U.S.; the FED Funds Rate and the Economic Recovery Rate By De Koning, Kees
  19. How puzzling is the forward premium puzzle? A meta-analysis By Diana Zigraiova; Tomas Havranek; Jiri Novak
  20. Overview of central banks’ in-house credit assessment systems in the euro area By Auria, Laura; Bingmer, Markus; Graciano, Carlos Mateo Caicedo; Charavel, Clémence; Gavilá, Sergio; Iannamorelli, Alessandra; Levy, Aviram; Maldonado, Alfredo; Resch, Florian; Rossi, Anna Maria; Sauer, Stephan
  21. The impact of the euro on trade: two decades into monetary union By Gunnella, Vanessa; Lebastard, Laura; Lopez-Garcia, Paloma; Serafini, Roberta; Mattioli, Alessandro Zona
  22. Bitcoin and traditional currencies during the Covid-19 pandemic period By Chu, Meifen
  23. Inflation Regimes and Hyperinflation. A Post-Keynesian/Structuralist typology By Sébastien Charles; Eduardo Bastian; Jonathan Marie
  24. Questions and Answers: The Information Content of the Post-FOMC Meeting Press Conference By Michiel De Pooter
  25. Small firms and domestic bank dependence in Europe’s Great Recession By Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
  26. Precautionary Liquidity Shocks, Excess Reserves and Business Cycles By Bratsiotis, George J.; Theodoridis, Konstantinos
  27. Capital Flows to Emerging Economies and Global Risk Aversion during the COVID-19 Pandemic By Carlos Alba; Gabriel Cuadra; Juan R. Hernández; Raúl Ibarra-Ramírez
  28. A tale of paper and gold: the material history money in South Africa By Feingold, Ellen; Fourie, Johan; Gardner, Leigh
  29. Macroprudential Policy and the Sovereign-Bank Nexus in the Euro Area By Nikolay Hristov; Oliver Hülsewig; Benedikt Kolb
  30. The Rise of a New Anchor Currency in RCEP? A Tale of Three Currencies By Guo, Dong; Zhou, Peng
  31. Financialisation and market concentration in the USA: A monetary circuit theory By Dögüs, Ilhan
  32. Food Price Inflation and Demand Shocks: Evidence from Chinese Cities during the Covid-19 Epidemic By Yang, Bixuan; Asche, Frank; Li, Tao
  33. There and Back Again: The Making of Uganda’s Mobile Money Tax By Lees, Adrienne; Akol, Doris
  34. Measuring food price volatility By Traore, Fousseini; Diop, Insa
  35. Selecting valuation distributions: non-price decisions of multi-product firms By Stefanie Bossard; Armin Schmutzler
  36. How the West India trade fostered last resort lending by the Bank of England By Sissoko, Carolyn; Ishizu, Mina

  1. By: Ozili, Peterson K
    Abstract: This paper discussed the opportunities and risks of central bank digital currency (CBDC) in Nigeria, also known as the eNaira or e-Naira. The opportunities which CBDC present to Nigeria include, improved monetary policy transmission, efficient payments and increased financial inclusion. Some of the identified risks include rising digital illiteracy, increased propensity for cyber-attacks, data theft, and the uncertain role of banks in a full-fledged CBDC economy. This article contributes to the literature by evaluating the pros and cons of fiat digital currency such as a central bank digital currency.
    Keywords: central bank digital currency, eNaira, blockchain, cryptocurrency, central bank, CBDC, bitcoin, payment system, fiat digital currency, distributed ledger, Nigeria.
    JEL: E51 E52 E58 E59 G18 G21
    Date: 2021–10–02
  2. By: Konstantin Styrin (Bank of Russia, Russian Federation); Alexander Tishin (Bank of Russia, Russian Federation)
    Abstract: In this paper, we develop a simple framework to study the optimal macroprudential and monetary policy interactions in response to financial shocks. Our model combines nominal rigidities and capital accumulation, features that have usually been studied separately in previous literature. In our model, we show that agents do not internalise how their asset purchases affect asset prices. Thus, when crises occur, there are fire sales: less demand for capital further reduces prices and agents are worse off. Policy interventions (both monetary and macroprudential) can improve allocations by restricting borrowing ex-ante (during the accumulation of risks and imbalances) and stimulating the economy ex-post (during crises). As a result, we find a complementary relationship between ex-ante monetary policy and preventive macroprudential policy. We also compare this result with a flexible-price model and a frictionless model and conduct several sensitivity analysis exercises.
    Keywords: Macroprudential policy, monetary policy, pecuniary externalities, nominal rigidities, financial frictions, capital accumulation.
    JEL: E44 E58 G28 D62
    Date: 2021–09
  3. By: Aysan, Ahmet Faruk; Kayani, Farrukh Nawaz
    Abstract: This article provides a detailed introduction to China’s launching of a digital currency. We conduct a comparative analysis concerning whether digital currency is a more stable and reliable currency than cryptocurrency and investigate whether a digital renminbi (or yuan) could replace the US dollar as a medium of exchange in international transactions. China has gained a first-mover advantage by rolling out a central bank digital currency (CBDC). But the outcome will depend on the US response as well as the future evolution of the US and Chinese economies. Most other articles on this topic focus on domestic use of the Chinese CBDC. But this study is unique in analyzing the prospects of a digital renminbi as a replacement for the US dollar in international commerce.
    Keywords: China, cryptocurrency, digital yuan, People’s Bank of China, US.
    JEL: F50
    Date: 2021–05–06
  4. By: Bańbura, Marta; Leiva-Leon, Danilo; Menz, Jan-Oliver
    Abstract: Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB’s SPF and Consensus Economics compared to their counterparts that do not. The gains in forecast accuracy from incorporating inflation expectations are typically not large but significant in some periods. Both short- and long-term expectations provide useful information. By contrast, incorporating expectations derived from financial market prices or those of firms and households does not lead to systematic improvements in forecast performance. Individual models we consider are typically better than univariate benchmarks but for the euro area the professional forecasters are more accurate, especially in recent years (not always for the countries). The analysis is undertaken for headline inflation and inflation excluding energy and food and both point and density forecast are evaluated using real-time data vintages over 2001-2019. JEL Classification: C53, E31, E37
    Keywords: Bayesian VAR, forecasting, inflation, inflation expectations, Phillips curve
    Date: 2021–10
  5. By: Joof, Foday
    Abstract: This paper analyses the impact of foreign currency reserve and economic growth on money supply, using a panel data of five West African Monetary Zone (WAMZs) member states from 2001-2019. The study employed the dynamic Panel techniques (Fully Modified Ordinary Least Square and Dynamic Ordinary Least Square) and the Static method (Fixed Effect model) for robustness check. The long run results showed that foreign currency reserves (FCR) have a positive impact on money supply, implying that a one percent increase in foreign currency reserves augments money supply (M2) by 2.87%, 0.44% and 0.08%, respectively in the long run. Similarly, economic growth is associated with an increase in money supply in both models. Furthermore, the Dumitrescu and Hurlin Causality (2012) estimation revealed a feedback association between foreign currency reserve and money supply. This means that that foreign reserves and money supply are complementary. Conversely, a unidirectional causality moving from economic growth to M2 is observed, demonstrating that economic growth causes M2 and not otherwise. This outcome is explained by the QTM (quantity theory of money) in which the velocity of money is a positive function of total money supply. As money circulates in the economy as a result of a surge in investments, consequently increases money stock. Similarly, investment opportunities that are been exploited day-by-day explains the growing money stock. Central banks should endeavor to monitor the expansionary influence of net foreign assets (NFA) on money supply growth in the WAMZ by establishing suitable methods to sterilize foreign exchange infusions into the economy.
    Keywords: foreign currency reserve, money supply, economic growth, WAMZ, Dynamic Model , Static Model
    JEL: E5 E58
    Date: 2021–10–14
  6. By: Tweneboah Senzu, Emmanuel
    Abstract: The paper empirically examines the predictive factor of the inflation rate observed to be the vector force of macroeconomic management as in the rise and fall of the currency exchange value of the Sierra Leone economy. Thereby adopting a statistical tool of an exogenous univariate auto-regression integrated moving average, to build a forecasting model between the open-market-exchange rate and the inflation rate to establish the degree of correlation effect, as a basis to theoretically prescribe a policy instrument, a means to maximize economic transaction beneficial for sustainable macroeconomic growth. This leads to established findings, that an average price shift of +/- 0.032 of the Leone currency price with the US dollar at the open market, always causes a percentage point change of inflation to the endogenous economy, when all other factors remain constant.
    Keywords: Inflation, Exchange rate, policy instrument, regression models, monetary policy
    JEL: E17 E5 E52 E58
    Date: 2021–10–07
  7. By: Fabiani, Josefina; Fidora, Michael; Setzer, Ralph; Westphal, Andreas; Zorell, Nico
    Abstract: This paper analyses the incidence and severity of sudden stops in euro area countries before and after the introduction of the ECB’s asset purchase programmes. We define sudden stops as abrupt declines in private net financial inflows, i.e. total flows adjusted for EU and IMF loans and changes in TARGET2 balances. Distinguishing between mild and severe sudden stops, we document that sudden stops were overall more frequent and more severe in euro area countries compared to other OECD economies over the period 1999–2020. On the basis of a multinomial logit model, we find that the susceptibility of euro area countries to severe sudden stops mainly reflects domestic fundamentals whereas there is no clear evidence of an adverse direct effect of being part of the euro area. On the contrary, TARGET2 appears to act as an “automatic stabiliser”, counteracting sudden stops in private financial i nflows. Moreover, our econometric analysis suggests that the asset purchase programmes implemented by the ECB since 2015 have overall almost halved the risk of severe sudden stops in euro area countries. We find tentative evidence that this effect operates through confidence channels. JEL Classification: F21, F31, F32, F41, F45
    Keywords: ECB asset purchase programmes, financial flows, monetary policy, sudden stops
    Date: 2021–10
  8. By: Giuzio, Margherita; Kaufmann, Christoph; Ryan, Ellen; Cappiello, Lorenzo
    Abstract: We examine the transmission of monetary policy via the euro area investment fund sector using a BVAR framework. We find that expansionary shocks are associated with net inflows and that these are strongest for riskier fund types, reflecting search for yield among euro area investors. Search for yield behaviour by fund managers is also evident, as they shift away from low yielding cash assets following an expansionary shock. While higher risk-taking is an intended consequence of expansionary monetary policy, this dynamic may give rise to a build-up in liquidity risk over time, leaving the fund sector less resilient to large outflows in the face of a crisis. JEL Classification: E32, G11, G23
    Keywords: liquidity management, monetary policy, non-bank financial intermediation
    Date: 2021–10
  9. By: Korobilis, Dimitris; Landau, Bettina; Musso, Alberto; Phella, Anthoulla
    Abstract: This paper develops a Bayesian quantile regression model with time-varying parameters (TVPs) for forecasting inflation risks. The proposed parametric methodology bridges the empirically established benefits of TVP regressions for forecasting inflation with the ability of quantile regression to model flexibly the whole distribution of inflation. In order to make our approach accessible and empirically relevant for forecasting, we derive an efficient Gibbs sampler by transforming the state-space form of the TVP quantile regression into an equivalent high-dimensional regression form. An application of this methodology points to a good forecasting performance of quantile regressions with TVPs augmented with specific credit and money-based indicators for the prediction of the conditional distribution of inflation in the euro area, both in the short and longer run, and specifically for tail risks. JEL Classification: C11, C22, C52, C53, C55, E31, E37, E51
    Keywords: Bayesian shrinkage, euro area, Horseshoe, inflation tail risks, MCMC, quantile regression, time-varying parameters
    Date: 2021–10
  10. By: Charlotte André Marine; Guido Traficante
    Abstract: We examine forward guidance (with known and uncertain duration) in a New Keynesian model for an advanced small open economy, showing that the response of the economy to this policy depends, both quantitatively and qualitatively, on some structural features through calibrations for Sweden and Spain. In particular, an announcement of future expansionary policy is positively related to the exchange rate pass-through and is larger than in the closed economy counterpart because of a better inflation-output trade-off and the exchange rate channel. We also show that multiple equilibria could arise and that the real exchange rate is a key variable driving this result. In particular, the response of output and inflation is amplified when aggregate supply is negatively related to the real exchange rate. These results could not necessarily be extended to emerging market economies.
    JEL: E31 E52
    Date: 2021–10
  11. By: Asongu, Simplice; Agyemang-Mintah, Peter; Nting, Rexon
    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
  12. By: Tatiana Grishina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: Assuming that a central bank is successful in steering money market interest rates, commercial banks’ loan rate setting behaviour is not expected to change during a transition between liquidity surplus and deficit. However, this logic does not hold if a bank employs different money market instruments for the lending and borrowing activities. In this environment, it may be appropriate to adjust the loan rates when a bank transitions between liquidity surplus and deficit (i.e. switches between the benchmark money market rates). This strategy is fundamentally different from linking the loan rates to the average cost of funding (i.e. the average between retail and wholesale funding rates). The magnitude of such loan rate adjustment is limited by the (usually moderate) spread between the funding and investment money market rates.
    Keywords: Excess reserves, Lending rates, Fund transfer pricing, Russia
    JEL: E43 E51 E58 G21 C63
    Date: 2021–10
  13. By: Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
    Abstract: This paper presents a simple integrated macroeconomic model of a small, bank-dependent open economy with a managed float and financial frictions. The model is used to study, both analytically and diagrammatically, the macroeconomic effects of five types of policy instruments: fiscal policy, monetary policy, macroprudential regulation, foreign exchange intervention, and capital controls, in the form of a tax on bank foreign borrowing. We also consider a drop in the world interest rate and examine how these instruments can be adjusted jointly to restore the initial equilibrium. Although this analysis is only partial (given, in particular, the static nature of the model and the absence of an explicit account of policy preferences), it provides new insights on how macroeconomic policies operate under a managed float and financial frictions, and how these policies can complement each other in response to capital inflows driven by "push" factors. In particular, the analysis shows that, to stabilize the economy, whether monetary policy should be contractionary or expansionary depends on which other instruments are available to policymakers. The joint use of macroprudential regulation and capital controls is also shown to provide a potent combination to manage capital inflows.
    JEL: E63 F38 F41
    Date: 2021–09
  14. By: Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F.
    Abstract: We study the transmission of (unconventional) monetary policy to the real sector when firm decisions depend on both current and future credit market conditions. For a given level of current credit access, investment and employment increases more at firms expecting bank credit to improve in the future. Three separate unconventional policies by the ECB—the OMT, the introduction of negative rates, and the CSPP—improved expectations of future credit access for SMEs borrowing from banks that were expected to increase SME lending due to the policy. Our results enhance our understanding of the bank balance sheet channel of monetary policy. JEL Classification: D22, D84, E58, G21, H63
    Keywords: corporate investment, funding expectations, Unconventional monetary policy
    Date: 2021–10
  15. By: Asongu, Simplice; Odhiambo, Nicholas
    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
  16. By: Volckart, Oliver
    Abstract: Research on premodern monetary unions has so far started out from the idea that such unions were designed to promote trade and economic integration. The present paper demonstrates that this in an anachronistic misconception. Premodern monetary unions were the answer to political and fiscal problems caused by Gresham’s Law in a monetary environment characterised permeable borders and by the increasing integration of currency markets. As integration advanced significantly in the fifteenth and early sixteenth centuries, the regional monetary unions that had been formed in the late medieval Holy Roman Empire were increasingly insufficient to address these problems. This is why the imperial estates were interested in creating and Empire-wide common currency – an aim they reached at the end of the 1550s.
    JEL: B11 O52 N0 J1
    Date: 2021–04
  17. By: Castro Azócar, Felipe
    Abstract: Regarding the discussion on a New Constitution in Chile, the debate on the autonomy of the Central Bank has polarized: Some consider it fundamental for macroeconomic balances, and others question it as an "authoritarian enclave". Should the Constitution settle this issue? It will be seen that it is not so much what it says on paper that matters, but how the autonomy and independence of the Central Bank are articulated in the reality.
    Keywords: Constitutional autonomy; Central Bank autonomy; price stability; Chilean new constitution; economic policy
    JEL: E3 E6 K0 K23
    Date: 2021–10–09
  18. By: De Koning, Kees
    Abstract: The Federal Reserve has indicated that it will gradually reduce its purchases of eligible securities (Quantitative Easing) from November 2021. At the same meeting of the Federal Reserve Board, the Committee members who decide when to start raising interest rates were split equally about a possible starting date. The current guidance rate is between 0% and 0.25%. If the guidance rate is changed, the banking sector follows. An element that needs further attention is how an interest rate rise would affect households and thereby employment levels, profit levels of companies and the tax receipts of the U.S. Government. Take mortgages as an example. A mortgage represents the encumbered element of a home. The second element is the home equity savings element. In case of an increase in base rates, the financial sector can be expected to follow up with an increase in mortgage rates. The borrowers will have no choice but to pay up. There is another option that focuses on the savings element in U.S. home equity, currently estimated at $23.6 trillion. Treating home equity savings as a key to economic expansion needs a system that helps households to temporarily reduce some of such home equity and use it for funding its consumer spending levels. The financial sector cannot lend funds at 0% as they borrow their funds at market rates. However, the Fed can do so by introducing not one but two different rates: one the Fed funds rate, which influences the rate for the financial, commercial and Government borrowing sector and the second one for a temporary release of some home equity for households; the Economic Recovery Rate (ERR). The latter –a 0% rate- can be applied as a micro and equally a macro economic tool to stimulate the U.S. economy as and when needed. Why and how such dual interest rate system could work is explained in this paper.
    Keywords: Economic Recovery Rate; Inflation; Home Equity; Mortgage lending, Economic Adjustment Tools; Quantitative Easing; Federal Reserve.
    JEL: E2 E21 E27 E4 E40 E42 E43 E44 E5
    Date: 2021–10–07
  19. By: Diana Zigraiova (ESM); Tomas Havranek (Charles University, Prague); Jiri Novak (Charles University, Prague)
    Abstract: A key theoretical prediction in financial economics is that under risk neutrality and rational expectations, a currency's forward rates should form unbiased predictors of future spot rates. Yet scores of empirical studies report negative slope coefficients from regressions of spot rates on forward rates, which is inconsistent with the forward rate unbiasedness hypothesis. We collect 3,643 estimates from 91 research articles and using recently developed techniques investigate the effect of publication and misspecification biases on the reported results. Correcting for these biases yields slope coefficients of 0.31 and 0.98 for developed and emerging currencies respectively, which implies that empirical evidence is in line with the theoretical prediction for emerging economies and less puzzling than commonly thought for developed economies. Our results also suggest that the coefficients are systematically influenced by the choice of data, numeraire currencies, and estimation methods. The findings can be applied to calibrating carry trade strategies for individual currencies.
    Keywords: Forward rate bias, uncovered interest parity, meta-analysis, publication bias, model uncertainty
    JEL: C83 F31 G14
    Date: 2020–07–31
  20. By: Auria, Laura; Bingmer, Markus; Graciano, Carlos Mateo Caicedo; Charavel, Clémence; Gavilá, Sergio; Iannamorelli, Alessandra; Levy, Aviram; Maldonado, Alfredo; Resch, Florian; Rossi, Anna Maria; Sauer, Stephan
    Abstract: The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment. This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences. JEL Classification: E58
    Keywords: credit assessments, credit claims, credit risk models, ICAS, ratings
    Date: 2021–10
  21. By: Gunnella, Vanessa; Lebastard, Laura; Lopez-Garcia, Paloma; Serafini, Roberta; Mattioli, Alessandro Zona
    Abstract: The consensus back in 2008 – ten years after the introduction of the euro – was that the adoption of a common currency had made a limited impact of around 2% in total on the trade flows of the first wave of euro area countries (Baldwin et al., 2008). Since then, six more countries have joined the euro area, and firms have internationalised their production processes. These two phenomena are interrelated and may have changed the way the common currency affects the euro area economy. Therefore, with the common currency now into its third decade – and with more countries queuing to adopt it – this paper revisits the trade effects of the euro, focusing on the newer euro adopters (i.e. those countries that have adopted the euro since 2007) and their interaction with the first wave of euro area members via supply chains. The contribution of the paper is twofold. First, it revisits the estimated aggregate impact of the euro on euro area trade, as well as on trade within and between the two waves of adopters. Data on bilateral flows between 1990 and 2015 for an extended sample of countries to estimate a gravity equation indicate a significant trade impact, ranging between 4.3% and 6.3% in total on average, with the magnitude being the highest for exports from the second wave of adopters to the first wave of adopters. If a synthetic control approach (Abadie and Gardeazabal, 2003; Abadie et al., 2010) is used instead, the estimated gains associated with euro adoption are greater. In particular, exports of both intermediate and final products from countries belonging to the first wave of euro adopters to those belonging to the second wave are estimated to have increased by about 30% using this approach. The second contribution made by this paper relates to the channels through which trade might be affected by a currency union. This question is explored by looking separately at trade in intermediate goods and final products. While we find that trade gains were mainly driven by trade in intermediate goods among countries that adopted the currency earlier (5.3%), our results also show that the euro had a positive effect on the exports of final products from the second wave of adopters to other euro area countries. This effect is as high as 10.6% with the gravity model and 32% with the synthetic control approach. One of the reasons for the difference in the range of estimates between the two approaches might be that the gravity model can control for unobserved characteristics via fixed effects, while the synthetic control approach may fail to do so. These results suggest that the euro facilitated the establishment and expansion of international production chains in Europe. In turn, this is likely to have increased business cycle synchronisation in the euro area and to have supported market access for later adopters. JEL Classification: F14, F15
    Keywords: euro, global value chains, gravity equation, synthetic control approach, trade flows
    Date: 2021–10
  22. By: Chu, Meifen
    Abstract: The objective of this study is to examine the movement of Bitcoin and the traditional currencies (USD, EURO, GBP and CNY) and the Bitcoin’s hedging of the traditional currencies. First, this paper observes the Bitcoin and four traditional currency exchange series: the USD, EURO, GBP and CNY. Second, it examines the fluctuation patterns of each series by using wavelet transform analysis, Third, a wavelet coherence analysis is applied to examine the interdependence between the Bitcoin and the four traditional currencies. The phase pattern analysis results indicate that the Bitcoin may not act as a hedging currency to replace the traditional currencies during the Covid-19 crisis. Another interesting result shows the rapid increasing number of the World Covid-19 Deaths (CovidDeaths) may not be the critical reason for the hyper price of the Bitcoin. The massive quantitative easing (QE) may be considered as the key reason for the soar-up of the Bitcoin price.
    Keywords: Bitcoin, Traditional currencies, Covid-19, CovidDeaths, Hedging feature, Wavelet Analysis
    JEL: C1
    Date: 2021–04–05
  23. By: Sébastien Charles (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis); Eduardo Bastian; Jonathan Marie (CEPN - Centre d'Economie de l'Université Paris Nord - CNRS - Centre National de la Recherche Scientifique - USPC - Université Sorbonne Paris Cité - UP13 - Université Paris 13)
    Abstract: The article proposes a typology of inflation regimes that can be applied to any kind of economy based on the Post-Keynesian and structuralist literature. We identify three separate regimes: the low, moderate, and high inflation regimes. Hyperinflation is also defined and described. Each regime presents different characteristics. We identify the key role played by the distributive conflict between workers and capitalists in all the regimes, the role played by the indexation of wages on domestic prices in the moderate and high inflation regimes, and the specific roles played by the widespread indexation on a short term basis in the high inflation regime. Hyperinflation is explained by selffulfilling prophecies about exchange rate variations and by the rejection of the domestic currency. Our analysis underlines the fact that the current fear of inflation is largely groundless.
    Keywords: Inflation,Hyperinflation,Post-Keynesian analysis,Structuralist analysis
    Date: 2021–10–03
  24. By: Michiel De Pooter
    Abstract: Since 2011, the Chair of the Federal Reserve has held post-FOMC meeting press conferences. In a recent survey by the Hutchins Center at Brookings, which canvassed Federal Reserve watchers in academia and the private sector, respondents indicated that they view these live press conferences as the most useful of the Federal Reserve's communication tools, with more than 80 percent of respondents rating the press conferences as "useful" or "extremely useful."
    Date: 2021–10–12
  25. By: Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
    Abstract: After the inception of the euro, the real economy in most member countries remained dependent on credit by domestic banks, which increasingly funded themselves through cross-border interbank funding. We find that this pattern of ‘double-decker’ banking integration exposed domestic banks to sharp declines in cross-border interbank lending during the eurozone crisis. As a result, domestic banks reduced lending which led to large declines in output in sectors with many small (bank-dependent) firms. We propose a quantitative small open economy model to account for these patterns and conclude that a global banking shock leading to a sudden stop in cross-border interbank lending in the eurozone is required to account for them.
    Keywords: Small and medium enterprises, sme access to finance, banking integration, domestic bank dependence, interbank dependence, international transmission, eurozone crisis
    JEL: F30 F36 F40 F45
    Date: 2021–10
  26. By: Bratsiotis, George J.; Theodoridis, Konstantinos
    Abstract: This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the banking sector's reluctance to lend to the real economy induced by an exogenous preference change for liquid assets. Through the lens of a DSGE model, the precautionary liquidity shock is shown to work through two channels: reserves (balance sheet) and the deposit rate (intertemporal effect). The overall effect is a downward co-movement in output, consumption, investment, and prices, which is amplified the higher are the long-run risks in the economy and banks' responsiveness to potential risk.
    Keywords: SVAR,Sign and Zero Restrictions,DSGE,Precautionary Liquidity Shock,Excess Reserves,Deposit Rate,Risk,Financial Intermediation
    JEL: C10 C32 E30 E43 E51 G21
    Date: 2021
  27. By: Carlos Alba; Gabriel Cuadra; Juan R. Hernández; Raúl Ibarra-Ramírez
    Abstract: This paper analyzes recent changes in the relative importance of the determinants of capital flows to emerging market economies. For this purpose, we estimate vector autoregressive (VAR) models for the period 2009-2020. Based on these models, we estimate the effects on debt flows from shocks to their determinants. Then, we quantify the contribution of each of the variables included in the model to explain the evolution of these flows in each month of the sample through a historical decomposition analysis. The main results indicate that the contribution of global risk aversion to explain the evolution of debt flows increased during March 2020 compared to the past, although its relative importance has decreased since, particularly as the performance of financial markets improved.
    JEL: F21 F32 F41 G15
    Date: 2021–10
  28. By: Feingold, Ellen; Fourie, Johan; Gardner, Leigh
    Abstract: This paper uses the South African objects in the National Numismatic Collection of the Smithsonian to tell a new material history of money in South Africa. In other parts of the continent, research about the currencies in use and how these changed over time have offered a new perspective on the impact of colonialism, commercialisation, and the rise of state capacity. South Africa, and southern Africa more generally, has remained on the periphery of these debates. This paper begins to fill this gap. It shows that even in Africa’s most financially developed region, the process of establishing a stable national currency was long and halting, reflecting struggles over South Africa’s relationship with the global economy and the rise and fall of apartheid.
    Keywords: South Africa; currency; colonialism; mineral; REF Impact Fund
    JEL: N47 N17
    Date: 2021–01
  29. By: Nikolay Hristov; Oliver Hülsewig; Benedikt Kolb
    Abstract: We explore how changes in capital-based macroprudential regulation in the euro area affect the exposure of national banking sectors to domestic government debt, thus strengthening or weakening the sovereign-bank nexus. To do so, we construct a measure of macroprudential policy based on the Macroprudential Policy Evaluation Database (MaPPED) and estimate responses to the unsystematic component of macroprudential policy in panel vector autoregressive models for euro area ”core” and ”periphery” countries. Our main finding suggests that an unsystematic capital-based macroprudential policy tightening increases banks’ exposure to domestic sovereign bonds in the periphery countries and thus deepens the sovereign-bank nexus. By contrast, banks in the core countries expand their loan portfolios, rather than adjusting their domestic sovereign bond holdings, in response to the shock. We show that this result can be tied to the theoretical literature and investigate several transmission channels. Our results are highly robust to changes in the econometric set-up and the macroprudential indicator used.
    Keywords: macroprudential policy, euro area, sovereign-bank nexus, panel vector autoregressive model
    JEL: C33 G21 G28 H63
    Date: 2021
  30. By: Guo, Dong; Zhou, Peng (Cardiff Business School)
    Abstract: We propose a flow-based criterion (intensity of use) and a stock-based criterion (stability of value) for choosing an anchor currency. This conceptual framework is applied to analyzing the RCEP region. According to the estimated TVP-VAR model, the influence of the US dollar in the region was weakened during the global financial crisis and the COVID pandemic, creating an opportunity for both Chinese Yuan and Japanese Yen to compete for the anchor currency. In terms of the intensity criterion, China accounts for the largest share in the regional share, but Yen seems to have an upper hand in the stability criterion. The sophisticated cooperative-competitive relationship between China and Japan may prolong the birth of a new anchor currency. Before then, US dollar still holds the role and the RCEP regional trade is subject to excessive volatility.
    Keywords: RCEP; TVP-VAR; Anchor Currency; Internationalization
    JEL: F13 F33 F45
    Date: 2021–09
  31. By: Dögüs, Ilhan
    Abstract: This paper explains the emergence of financialisation of nonfinancial corporations (NFCs) in the USA by way of the increased pension fund savings of white-collar workers which can be considered by Monetary Circuit Theory (MCT) as 'leakages' causing equity issuances to be replenished. The indirect causal nexus can briefly be explained that pension fund savings of white-collar workers have been facilitated by the increasing wage differential between white-collar and blue-collar workers which is driven by the increased market concentration. Since pension funds savings are channelled to financial markets instead of being spent for consumption goods, liquidity deficits of firms being replenished throughout stock markets and because of excess inflows into financial markets, profit expectations of NFCs from liquid financial assets have come to exceed the quasi-rent expectations from illiquid capital assets due to depressed demand for consumption goods. This paper stands as a reconstructive summary of findings of three published articles on each arguments of causal nexus and a contribution to MCT which has not yet considered market concentration.
    Keywords: financialisation,market concentration,white-collar workers,wage differential,Monetary Circuit Theory
    JEL: E44 J31 L1
    Date: 2021
  32. By: Yang, Bixuan; Asche, Frank; Li, Tao
    Keywords: Food Consumption/Nutrition/Food Safety, Consumer/Household Economics, Health Economics and Policy
    Date: 2021–08
  33. By: Lees, Adrienne; Akol, Doris
    Abstract: Mobile money is widely seen as a powerful tool for enhancing financial inclusion and, potentially, improving the economic well-being of the poor. As the mobile money sector, and its turnover, have grown, certain governments have increasingly viewed mobile money transactions as a potentially convenient tax handle. The resulting tax measures are often controversial and draw sharp criticism from those who fear that they will undermine the growth of digital financial services. The case study of Uganda highlights an interesting example of this trend and demonstrates the importance of careful tax policy design. In early 2018, there was a consensus that Uganda’s tax effort remained some way below its revenue potential, and there was pressure to find new revenue sources. In July 2018, the government introduced an especially contentious new tax of 1 per cent on the value of all mobile money transactions, one of several excise duty amendments designed to increase revenue from the telecommunications and financial sectors. After widespread public outcry and significant implementation challenges, the tax was amended in November 2018 to apply only to mobile money withdrawals at a rate of 0.5 per cent.
    Keywords: Finance,
    Date: 2021
  34. By: Traore, Fousseini; Diop, Insa
    Abstract: Over the past two decades, the prices of agricultural commodities have experienced large and unpredictable fluctuations that have attracted the attention of researchers, policymakers and the media to better understand the mechanisms that govern this phenomenon. It is therefore important to acquire basic tools to assess the level of price volatility to warn of abnormal movements. The main objective of this technical note is to provide an overview of this literature in constant evolution, and tools for measuring food price volatility. The tools developed in this technical note help understand the complexity of measuring volatility and the caution required in their use. Thus, the application of these tools requires their adaptation to the nature of the data generating process and the use of appropriate tests and criteria in order to choose the best approach.
    Keywords: food prices, price volatility, tools, agricultural products, commodities, food price volatility,
    Date: 2021
  35. By: Stefanie Bossard; Armin Schmutzler
    Abstract: This paper analyzes decisions of multi-product firms regarding product selection, innovation and advertising as choices of consumer valuation distributions. We show that a profit-maximizing monopolist chooses these distributions so as to maximize the dispersion of the valuation differences between goods across consumers. By contrast, she chooses the willingness-to-pay to be maximally or minimally dispersed, depending on the set of available distributions. In our benchmark model with uniform valuation differences, prices are increasing in valuation difference heterogeneity, but in more general settings this is not necessarily true. Moreover, the relation between willingness-to-pay heterogeneity and prices may well be non-monotone. Over wide parameter ranges, the firm’s choice of valuation distribution does not maximize net consumer surplus. This problem is exacerbated when the firm has access to strategies that distort valuation heterogeneity or willingness-to-pay heterogeneity.
    Keywords: Product choice, multiproduct firms, product heterogeneity, valuation distributions, consumer confusion
    JEL: D43 L13 M30
    Date: 2021–10
  36. By: Sissoko, Carolyn; Ishizu, Mina
    Keywords: West India trade; lender of last resort; banking crises; banking system
    JEL: N23 N73
    Date: 2021–01

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