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on Monetary Economics |
| By: | Harms, Philipp; Knaze, Jakub |
| JEL: | F41 E31 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc21:242340&r= |
| By: | Isabelle Salle |
| Abstract: | This paper compares alternative monetary policy regimes within a controlled lab environment, where groups of participants are tasked with repeatedly forecasting inflation in a simple macroeconomic model featuring only the dynamics of interest rates, inflation and inflation expectations. Average-inflation targeting can approximate the price path observed under price-level targeting in the presence of disinflationary shocks and enable subjects to coordinate on simple heuristics that reflect the concern of the central bank for past inflation gaps. However, this depends on the exact specification of the policy rule. In particular, if the central bank considers more than two lags, subjects fail to form expectations that are consistent with the monetary policy rule, which results in greater inflation volatility. Reinforcing communication around the target helps somewhat anchor long-run inflation expectations. |
| Keywords: | Inflation targets; Monetary policy communications; Monetary policy framework |
| JEL: | C92 E31 E52 E7 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-53&r= |
| By: | Müller, Gernot; Dietrich, Alexander; Schoenle, Raphael |
| JEL: | E43 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc21:242446&r= |
| By: | Jérôme Creel (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Mehdi El Herradi (Université Bordeaux Montaigne) |
| Abstract: | This paper examines the distributional implications of monetary policy, either standard, non-standard or both, on income inequality in 10 Euro Area countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetary policy shock. The identification of monetary shocks follows a one-step procedure and relies only on country-specific determinants of income distribution. Results suggest that: (i) the distributional effects of ECB's monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in countries with a high level of market inequalities, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality. Results are robust to alternative data sources either for income distribution or for non-standard monetary policies. |
| Keywords: | Euro Area,Monetary policy,Income distribution,Panel VAR |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03389183&r= |
| By: | Luisa Corrado (DEF and CEIS, Università di Roma "Tor Vergata"); Stefano Grassi (DEF and CEIS, Università di Roma "Tor Vergata"); Enrico Minnella (Università di Roma "Tor Vergata") |
| Abstract: | This article assesses the impact of unconventional monetary policies and sheds light on their transmission mechanism in the United States. Using a three-variable Markov switching factor-augmented vector autoregression (MS-FAVAR) with time-varying transition probabilities and a shadow short-term interest rate, we allow our analysis to be free from arbitrary policy rate decisions and sample-splitting choices. By augmenting our informational set with variables able to grasp the functioning of Quantitative Easing, we can determine the differences between conventional and unconventional expansionary monetary policy shocks. Our results show a leading role for both the duration risk and the credit channels, a role for the default risk channel, and ultimately no evidence of the presence of a signaling channel during Quantitative Easing. We provide evidence that the large-scale asset purchase programs of the Federal Reserve effectively boosted the economy, mainly by modifying the term structure of the interest rates, thus providing strong economic stimulus throughout the financial sector. |
| Keywords: | Monetary Policy; Financial Crisis; Structural analysis; Non-linear FAVAR |
| JEL: | C54 E52 G01 |
| Date: | 2021–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:520&r= |
| By: | Guillermo Calvo; Andrés Velasco |
| Abstract: | We study the effects of monetary and fiscal policies when both money and government bonds provide liquidity services. Because money is the unit of account, the price of money is the inverse of the price level. If prices are sticky, so is the price of money in terms of goods, and this is one important reason why money is liquid and attractive. By contrast, the price of government bonds is free to jump and often does, especially in response to news about changes in fiscal policy and the supply of bonds. Those movements in government bond prices affect available liquidity, and that matters for aggregate demand, inflation and output. Under these conditions, bond-financed fiscal expansions can be contractionary, causing deflation and a temporary recession. To avoid those effects, changes in bond supply must be matched by changes in money supply and in the interest rate on money. We conclude that in a liquiditydependent world, fiscal and monetary policies are joined at the hip. |
| JEL: | E52 E62 E63 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:967&r= |
| By: | Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori |
| Abstract: | In response to the COVID-19 crisis, the ECB has relaunched a massive asset purchase programme within its combined-arms monetary strategy. This paper presents and discusses the theory and the evidence of the central bank’s asset purchases, mainly in the euro area. It analyses the role of asset purchase programmes in the ECB’s toolkit and the potential associated risks, focusing specifically on the problems of the programmes’ unwinding. Finally, the paper offers some possible alternatives to the asset purchase programme. |
| Keywords: | Unconventional monetary policies; Central banking; Zero-lower bound |
| JEL: | E32 E43 E44 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp201&r= |
| By: | Jorge Escolar (Banco de España); José Ramón Yribarren (Banco de España) |
| Abstract: | In March and April 2020, the European Central Bank adopted a series of monetary policy measures aimed at providing liquidity support to the financial system and facilitating access to financing for the real economy to mitigate the adverse economic effects of COVID-19. Some of these measures focused on preserving and expanding the universe of assets that counterparties can use as collateral to participate in Eurosystem financing operations. This paper, after a brief summary of the collateral framework for monetary policy operations, studies the measures adopted in this connection by the European Central Bank and the Banco de España and their impact on Spanish counterparties. This study finds that, in overall terms, two measures stand out over the others in terms of the amount of collateral provided: the acceptance of partially government-guaranteed credit claims and the reduction in haircuts. Although all counterparties have been affected by the measures, the extent of the impact has differed widely, determined by the characteristics of the assets used as collateral and their management. Finally, the interaction between the different measures is analysed, since more than one can affect the eligibility and valuation of the same asset. |
| Keywords: | European Central Bank, Eurosystem, collateral, monetary policy, counterpartie. |
| JEL: | E42 E52 E58 G21 G32 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2128&r= |
| By: | Große Steffen, Christoph |
| JEL: | E42 E52 D84 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc21:242466&r= |
| By: | Riccardo Degasperi; Seokki Simon Hong; Giovanni Ricco (Departement of Economics - University of Warwick - University of Warwick [Coventry]) |
| Abstract: | We quantify global US monetary policy spillovers by employing a high-frequency identification and big data techniques, in conjunction with a large harmonised dataset covering 30 economies. We report three novel stylised facts. First, a US monetary policy tightening has large contractionary effects onto both advanced and emerging economies. Second, flexible exchange rates cannot fully insulate domestic economies, due to movements in risk premia that limit central banks' ability to control the yield curve. Third, financial channels dominate over demand and exchange rate channels in the transmission to real variables, while the transmission via oil and commodity prices determines nominal spillovers. |
| Keywords: | monetary policy,trilemma,exchange rates,monetary policy spillovers |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03373749&r= |
| By: | Ahmet Faruk Aysan (HBKU - Hamad Bin Khalifa University); Nawaz Farrukh |
| 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 Classifications: E42,E58,G28 |
| Date: | 2021–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03364939&r= |
| By: | Atsuko Suzuki (Graduate School of Economics, Osaka University) |
| Abstract: | The Tokugawa monetary system was a new experience in Japanese history, and the Genroku debasement, which was necessitated by the exhaustion of gold and silver resources, was a new experiment for both the shogunate and merchants, the representatives of the townspeople. For the same reason, the shogunate had no choice but to implement a monetary policy gnominalistically, h but the merchants responded gmetallistically. h This was because the merchants valued money as bullion. The conflict between the shogunate and merchants played an important role in invigorating the Tokugawa economy. This study describes the historical economic situation. |
| Keywords: | commodity money, early modern Japan, fixed and floating exchange rates, Edo and Osaka, nominalistic and metallistic |
| JEL: | D46 E31 K42 N15 Z13 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2115&r= |
| By: | Fernando Alvarez; Andrea Ferrara; Erwan Gautier; Hervé Le Bihan; Francesco Lippi |
| Abstract: | In a broad class of sticky price models the non-neutrality of nominal shocks is encoded by a simple sufficient statistic: the ratio of the kurtosis of the size-distribution of price changes over the frequency of price changes. We test this theoretical prediction using data for a large number of firms representative of the French economy. We use the micro data to measure the cross sectional moments, including kurtosis and frequency, for about 120 PPI industries and 220 CPI categories. We use a Factor Augmented VAR to measure the sectoral responses to a monetary shock, as summarized by the cumulative impulse response of sectoral prices (CIRP), under three alternative identification schemes. The estimated CIRP correlates with the kurtosis and the frequency consistently with the prediction of the theory - i.e. they enter the relationship as a ratio. The analysis also shows that other moments not suggested by the theory, such as the mean, standard deviation and skewness of the size-distribution of price changes, are not correlated with the CIRP. Several robustness checks are explored. |
| Keywords: | Impulse Response Function, Monetary Shocks, Sticky Prices, Sufficient Statistic. |
| JEL: | E31 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:839&r= |
| By: | Gergely Hudecz (ESM); Edmund Moshammer (ESM); Alexander Raabe (ESM); Gong Cheng (ESM) |
| Abstract: | The question of whether the international monetary and financial system is, or should be, moving toward a more ’multipolar’ character has received much attention in recent years. The euro is the second most important global currency, and the euro area’s economic weight lays a solid foundation for its greater role on financial markets. A stronger international role would benefit not only the euro area but also the global financial system. This paper therefore focuses on the main drivers of the euro’s international role and the policies to support it. The ongoing reforms in the European Economic and Monetary Union can support the common currency on the international scene, and there is scope for further policies that strengthen the role of the euro on international capital markets. |
| Date: | 2021–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:stm:dpaper:16&r= |
| By: | Christophe Blot (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Emmanuelle Faure (LADYSS - Laboratoire Dynamiques Sociales et Recomposition des Espaces - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - UP - Université de Paris, Station d'économie et de sociologie rurales de paris - INRA - Institut National de la Recherche Agronomique); Paul Hubert (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | Beyond price stability, the EU Treaties assign to the ECB a range of secondary objectives. We investigate the linkages between price stability and these objectives to assess whether they are independent, complementary or substitutable, which is important to refine the definition of the mandate. Keeping the current mandate would not provide leeway for the ECB to reach other objectives. We propose to broaden the mandate to include employment and financial stability. Enhanced coordination should contribute to fulfilling the objectives. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs. |
| Keywords: | ECB’s Mandate,Financial stability,Employment |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03389186&r= |
| By: | Annette Vissing-Jørgensen |
| Abstract: | Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed Treasury purchases were causal for reducing Treasury yields based on (1) the timing of purchases (which increased on March 19), (2) evidence against confounding factors, and (3) the timing of yield reversal and Fed purchases in the MBS market. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15, 2020 Treasury-QE announcement. |
| JEL: | E5 G1 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:966&r= |
| By: | Morales, Paola; Osorio, Daniel; Lemus, Juan S.; Sarmiento Paipilla, Miguel (Tilburg University, Center For Economic Research) |
| Keywords: | Bank-lending channel; internationalization of banks; banks’ business models; bank risk-taking; macroprudential FX regulation |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:a8a61825-7d96-4635-8e61-8a7886445fae&r= |
| By: | Frédérique Savignac; Erwan Gautier; Yuriy Gorodnichenko; Olivier Coibion |
| Abstract: | Using a new survey of firms’ inflation expectations in France, we provide novel evidence about the measurement and formation of inflation expectations on the part of firms. First, French firms report inflation expectations with a smaller, but still positive, bias than households and display less disagreement. Second, we characterize the extent and manner in which the wording of questions matters for the measurement of firms’ inflation expectations. Third, we document whether and how the position of the respondent within the firm affects the provided responses. Fourth, because our survey measures firms’ expectations about aggregate and firm-level wage growth along with their inflation expectations, we are able to show that expectations about wages are even more condensed than firms’ inflation expectations and almost completely uncorrelated with them, indicating that firms perceive little link between price and wage inflation. Finally, an experimental treatment indicates that an exogenous change in firms’ inflation expectations has no effect on their aggregate wage expectations. |
| Keywords: | Inflation Expectations, Firms, Survey, Wages. |
| JEL: | E3 E4 E5 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:840&r= |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03363240&r= |
| By: | Li, Xiaoming; Liu, Zheng; Peng, Yuchao; Xu, Zhiwei |
| Abstract: | We study the impact of China’s 2013 implementation of Basel III on bank risk-taking and its responses to monetary policy shocks using confidential loan-level data from a large Chinese bank. Guided by theory, we use a difference-in-difference identification, exploiting cross-sectional differences in lending behaviors between high-risk and low-risk bank branches before and after the new regulations. We find that, through a risk-weighting channel, changes in regulations significantly reduced bank risk-taking, both on average and conditional on monetary policy easing. However, banks reduce risk-taking by increasing lending to ostensibly low-risk state-owned enterprises (SOEs) under government guarantees, despite their low average productivity. |
| JEL: | E52 G21 G28 |
| Date: | 2021–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2021_015&r= |
| By: | Müller, Lena Sophia; Glas, Alexander |
| JEL: | E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc21:242364&r= |
| By: | Roman Frydman (New York University); Joshua Stillwagon (Babson College) |
| Abstract: | We develop a novel characterization of participants` forecasts with a mixture of normal variables arising from a Markov component. Using this characterization, we formulate five behavioral specifications, including four implied by the diagnostic expectations approach, as well as three implied by REH, and derive several new predictions for Coibion and Gorodnichenko`s regression of forecast errors on forecast revisions. Predictions of all eight specifications are inconsistent with the observed instability of individual CG regressions` coefficients, based on inflation forecasts from 24 professionals. Our findings suggest how to build on key insights of the REH and behavioral approaches in specifying individuals` forecasts. |
| Keywords: | Diagnostic Expectations, Rational Expectations, Model Selection, Structural Change, Inflation Forecasts` Survey |
| JEL: | C52 D80 D83 D91 E31 E71 |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp163&r= |
| By: | Anne Duquerroy (Banque de France); Adrien Matray (Princeton University); Farzad Saidi (Boston University and CEPR) |
| Abstract: | This paper documents that monetary policy affects credit supply through banks’ cost of funding. Using administrative credit-registry and regulatory bank data, we find that banks can incur an increase in their funding costs of at least 30 basis points before they adjust their lending. For identification, we exploit the existence of regulated-deposit accounts in France whose interest rates are set by the government and are, thus, not directly affected by the monetary-policy rate.When banks’ funding cost increases and they contract their lending, we observe portfolio reallocations consistent with risk shifting: banks that depend on regulated deposits lend less to large firms, and relatively more to small firms and entrepreneurs. |
| Keywords: | Monetary-policy transmission; deposits; credit supply; SMEs; savings |
| JEL: | E23 E32 E44 G20 G21 L14 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:280&r= |
| By: | Matthias Kaldorf (University of Cologne, Center for Macroeconomic Research); Florian Wicknig (University of Cologne, Center for Macroeconomic Research) |
| Abstract: | This paper studies how collateral premia affect the supply and quality of bonds issued by non-financial firms. Banks increase demand for bonds eligible as collateral, to which eligible firms respond by increasing their debt issuance and default risk. We characterize firm responses and aggregate collateral supply in a heterogeneous firm model with collat-eral premia and endogenous default risk. Using a calibration to euro area data, we study the impact of collateral easing, consistent with the ECB’s policy during the 2008 financial crisis and evaluate the quantitative relevance of firm responses. We find that firm responses substantially deteriorate collateral quality and dampen the total increase in collateral sup-ply. Our analysis suggests that an eligibility covenant conditioning eligibility on leverage and current default risk, is a potentially powerful instrument to mitigate the adverse impact of eligibility requirements on collateral quality while maintaining a high level of collateral supply. |
| Keywords: | Eligibility Premia, Corporate Bonds, Firm Heterogeneity, Collateral Policy |
| JEL: | E44 E58 G12 G32 G33 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:123&r= |
| By: | Mikhail Dmitriev (Department of Economics, Florida State University); Manoj Atolia (Department of Economics, Florida State University) |
| Abstract: | We propose a universal and straightforward test for validating assumptions in the structural models. Structural models impose a causal structure, take data as an input, and then produce exact structural parameters. We simulate the new data while breaking the original causal structure. We then feed the model the simulated data and then see whether it produces different results. If its conclusions are the same, then the models’ implications are not sensitive to the underlying data, and the model fails the test. We then apply our test to the models analyzing monetary policy. We find out that simple SVARs successfully pass the test and can be used to identify monetary policy effects. On the other hand, DSGE models estimated via full-information methods such as Smets and Wouters (2007) fail the test and potentially force their conclusions on the data. |
| Keywords: | VARs, SVARs, DSGE, monetary policy |
| JEL: | C68 E44 E61 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2021_10_01&r= |
| By: | Hadrien Camatte; Guillaume Daudin (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Violaine Faubert; Antoine Lalliard; Christine Rifflart (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | Following the 2008 financial crisis, inflation rates in advanced economies have been at odds with the prediction of a standard Phillips curve. This puzzle has triggered a debate on the global determinants of domestic prices. We contribute to this debate by investigating the impact of exchange rate shocks on consumer prices from 1995 to 2018. We focus on cost-push inflation through global value chains. We build on three sectoral world input-output datasets (WIOD and two versions of TiVA). We assume a Cobb-Douglas production framework and work in a partial equilibrium setting. The construction of World Input-Output tables is data-demanding and WIOTs are typically released with a lag of several years. To address this gap, we use more up-to-date GDP and trade data, thus providing a tool for approximating the partial equilibrium impact of an exchange rate shock on consumer prices from 2015 onwards. Depending on countries, the absolute value of the elasticity of the household consumption expenditure (HCE) deflator to the exchange rate ranges from 0.05 to 0.35, confirming the importance of global value chains in channelling external shocks to domestic inflation. Using data from WIOD on a sample of 43 countries, we find that the mean output-weighted elasticity of the HCE deflator to the exchange rate increased in absolute value from 0.075 in 2000 to 0.094 in 2008. After peaking in 2008, it declined to 0.088 in 2014. Extrapolations based on more up-to-date GDP and trade data suggest that the decline continued until 2016, before reversing in 2017 and 2018. Our findings are robust to using three different datasets. |
| Keywords: | input-output linkages,spillovers,global value chains,cost-push inflation |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03374355&r= |
| By: | Hayo, Bernd |
| JEL: | E58 E71 D31 Z1 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc21:242331&r= |