nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒03‒28
24 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Long-run scarring effects of meltdowns in a small-scale nonlinear quadratic model By Francesco Simone Lucidi; Willi Semmler
  2. Robustly optimal monetary policy in a behavioral environment By Lahcen Bounader; Guido Traficante
  3. Trade Wars, Currency Wars By Stéphane Auray; Michael B. Devereux; Aurélien Eyquem
  4. Naive Agents with Non-unitary Discounting Rate in a Monetary Economy By Koichi Futagami; Daiki Maeda
  5. The Fiscal Theory of the Price Level with a Bubble By Markus Brunnermeier; Sebastian Merkel; Yuliy Sannikov
  6. QE: Implications for Bank Risk-Taking, Profitability, and Systemic Risk By Supriya Kapoor; Adnan Velic
  7. The ECB's neglected secondary mandate: An inter-institutional solution By de Boer, Nik; van 't Klooster, Jens
  8. A Comparison of Japanese and US New Keynesian Phillips Curves with Bayesian VAR-GMM By Takushi Kurozumi; Ryohei Oishi
  9. Inflationary Redistribution, Trading Opportunities and Consumption Inequality By Timothy Kam; Junsang Lee
  10. Effects of Bank Branch/ATM Consolidations on Cash Demand: Evidence from Bank Account Transaction Data in Japan By Kozo Ueda
  11. The international financial system after COVID-19 By Maurice Obstfeld
  12. Monetary and fiscal policy in a nonlinear model of public debt By Gian Italo Bischi; Germana Giombini; Giuseppe Travaglini
  13. Exchange Rates and Asset Prices in a Global Demand System By Ralph S. J. Koijen; Motohiro Yogo
  14. Ensemble and Multimodal Approach for Forecasting Cryptocurrency Price By Zeyd Boukhers; Azeddine Bouabdallah; Matthias Lohr; Jan J\"urjens
  15. A DSGE model with partial euroization: the case of the Macedonian economy By Mihai Copaciu; Joana Madjoska; Mite Miteski
  16. French domination of markets in Francophone Africa: Post-colonialism at its finest? By Kohnert, Dirk
  17. Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan By Tomomi Miyazaki; Haruo Kondoh
  18. Determinants of NMD Pass-Through Rates in Eurozone Countries By Milan Fičura; Jiří Witzany
  19. Taking Vulnerability into Account for the Reallocation of SDRs? By Alban Cornier; Laurent Wagner
  20. Stock Market Response to Covid-19, Containment Measures and Stabilization Policies - The Case of Europe By Jens Klose; Peter Tillmann
  21. The Real Effects of Invoicing Exports in Dollars By Antoine Berthou; Guillaume Horny; Jean-Stéphane Mésonnier
  22. Effects of Cross Country Fiscal Interdependence on Multipliers within a Monetary Union. By Kunzmann Vanessa
  23. Cross-Currency Settlement of Instant Payments in a Cross-Platform Context: a Proof of Concept By Massimiliano Renzetti; Andrea Dimartina; Riccardo Mancini; Giovanni Maria Sabelli; Francesco Di Stasio; Carlo Palmers; Faisal Alhijawi; Erol Kaya; Christophe Piccarelle; Stuart Butler; Jwallant Vasani; Giancarlo Esposito; Alberto Tiberino; Manfredi Caracausi
  24. On the volatility of cryptocurrencies By Thanasis Stengos; Theodore Panagiotidis; Georgios Papapanagiotou

  1. By: Francesco Simone Lucidi; Willi Semmler
    Abstract: We build a small-scale nonlinear quadratic (NLQ) model in which credit feedback and regime switches in the output gap a ect the adjustment path of the economy towards a steady state. The central bank solves a finite-horizon decision problem where the policy rate also can be zero or negative. We estimate this model by nonlinear seemingly unrelated regression method (NLSUR) and using the parameters to explore policy scenarios. The latter projects long-run dynamics after a large demand contraction leading to scarring effects in the economy. We point out three main results. First, while scars are dominant when the central bank follows a standard Taylor rule, unconventional monetary policy (UMP) mitigates the output decline in both the short and the long run. Second, a zero natural rate of interest alone curtails the central bank's ability to adjust the economy. Third, financial constraints leave the deepest scars even if UMP is active.
    Keywords: credit cycles; credit spread; inflation targeting; nonlinear Phillips curve; unconventional monetary policy
    JEL: E42 E52 E58
    Date: 2022–03
  2. By: Lahcen Bounader (International Monetary Fund); Guido Traficante (European University of Rome)
    Abstract: This paper studies robustly optimal monetary policy in a behavioral New Keynesian model, where the private sector has myopia, while the central bank has Knightian uncertainty about the degree of myopia of the private sector and the degree of price stickiness. In such a setup the central bank solves an optimal robust monetary policy problem. We show that under uncertainty in myopia the Brainard’s attenuation principle holds, while under uncertainty on price stickiness, alone or in addition to myopia, monetary policy becomes more aggressive.
    Keywords: Optimal monetary policy, bounded rationality, min- max, parameter uncertainty
    JEL: E
    Date: 2022
  3. By: Stéphane Auray (CREST-Ensai and Université du Littoral Côte d’Opale, France); Michael B. Devereux (Vancouver School of Economics, University of British Columbia, Canada); Aurélien Eyquem (Université Lumière Lyon2, France)
    Abstract: Countries distort trade patterns (‘trade wars’) to gain strategic advantage relative to one another. At the same time, monetary policies are set independently and have spillover effects on partner countries (‘currency wars’). We combine these two scenarios, and show that they interact in deep and interesting ways. The stance of monetary policy has substantial effects on the equilibrium degree of protection in a Nash equilibrium of the monetary and trade policy game. Trade wars lead to higher equilibrium inflation rates. Cooperation in monetary policy leads to both higher inflation and greater degree of trade protection. By contrast, when monetary policy is constrained by pegged exchange rates or the zero lower bound on interest rates, equilibrium tariffs are lower. Finally, when one country has the dominant currency in trade, it gains a large advantage in a trade war.
    Keywords: Protectionism, Currency Wars, Trade Wars
    JEL: F30 F40 F41
    Date: 2021–09–19
  4. By: Koichi Futagami (Department of Economics, Doshisha University); Daiki Maeda (School of Global Studies, Chukyo University)
    Abstract: We incorporate naive agents with a non-unitary discounting rate into a cash- in-advance (CIA) model. Through this extension, we obtain the following results. First, we show that there exists an equilibrium in which the CIA constraint does not bind when individuals discount their utilities from future consumption lower than their utilities from future leisure time. It is important to note that this non- binding equilibrium exists even if the nominal interest rate takes a positive value. Second, we demonstrate that increases in the money supply growth rate decreases the individuals f saving rate in the equilibrium in which the CIA constraint does not bind. Third, we exhibit that when the equilibrium where the CIA constraint does not bind exists, the welfare level of this equilibrium can be higher than that of the equilibrium in which the CIA constraint binds. Moreover, we deduce that the Friedman rule cannot be optimal in the equilibrium in which the CIA constraint binds and present the result that the optimal level of the optimal nominal interest rate is a?ected by the di?erence of the discount rates.
    Keywords: Non-unitary discounting rate; Naive agents; CIA constraint; Monetary policy; Friedman rule
    JEL: E52 E70
  5. By: Markus Brunnermeier (Princeton University); Sebastian Merkel (Princeton University); Yuliy Sannikov (Stanford University)
    Abstract: This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy’s growth rate.
    Keywords: Fiscal policy, Monetary Economics
    JEL: E44 E52 E63
    Date: 2020–05
  6. By: Supriya Kapoor (Technological University Dublin); Adnan Velic (Technological University Dublin)
    Abstract: In the aftermath of the sub-prime mortgage bubble, the Federal Reserve implemented large scale asset purchase (LSAP) programmes that aimed to increase bank liquidity and lending. The excess liquidity created by quantitative easing (QE) in turn may have stimulated bank risk-taking in search of higher profits. Using comprehensive data on balance sheets, risk measures, and daily market returns in the U.S., we investigate the link between QE, bank risk-taking, profitability, and systemic risk. We find that, particularly during the third round of QE, banks that were more exposed to the unconventional monetary policy increased their risk-taking behavior and profitability. However, these banks also reduced their contribution to systemic risk indicating that the implementation of QE had an overall stabilizing effect on the banking sector. These results highlight the different distributional effects of QE.
    Keywords: large-scale asset purchases, quantitative easing, bank risk-taking, systemic risk, expected shortfall
    JEL: E52 E58 G21
    Date: 2022–02
  7. By: de Boer, Nik; van 't Klooster, Jens
    Abstract: The ECB’s secondary mandate requires it to the support broader economic policies by and in the EU. Until recently absent from the ECB strategy, the secondary mandate features prominently in the ECB’s 2021 review of its monetary policy strategy. This report asks: How should the ECB interpret the many objectives that the secondary mandate mentions? And how should it act on them? A more prominent role for its secondary mandate fits well with the new, more political role of the ECB, but it should not act on the secondary mandate alone. Why is that? The requirements that the legal text imposes on the ECB are paradoxical and difficult to reconcile. We explain the paradox in terms of three features. Firstly, the secondary mandate is binding on the ECB so that it must support the EU’s economic policies where this is possible without prejudice to price stability. However and secondly, the secondary mandate is also highly indeterminate because there are many relevant secondary objectives and ways to support them. Acting on the secondary mandate requires prioritising objectives and designing new instruments. Yet, thirdly, the ECB lacks the competence to develop its own policies to pursue the secondary objectives. For the ECB to simply choose its own secondary objectives and act on them raises severe legal and democratic objections. To resolve this paradoxical situation, we propose that the specification of the secondary objectives should take place via high-level coordination with the political institutions of the EU. Unlike direct instructions which are illegal under EU law, coordination would be compatible with central bank independence and strengthen the ECB’s ability to pursue price stability. We propose three main avenues to give shape to such interinstitutional coordination.
    Date: 2021–10–24
  8. By: Takushi Kurozumi (Bank of Japan); Ryohei Oishi (Bank of Japan)
    Abstract: We compare Japanese and US inflation dynamics during the post-Global Financial Crisis period by utilizing Bayesian VAR-GMM to estimate several specifications of the New Keynesian Phillips curve. With the estimation method, we derive expectations in the Phillips curve from a VAR and analyze the formation of inflation expectations explicitly. We select the specification with variable elasticity of demand for Japan and that with sticky information for the US, using quasi-marginal likelihood. The selected specifications show that the persistence of inflation expectations formation is higher and trend inflation is lower in Japan than in the US. These findings account for persistently weak inflation developments in Japan: in the presence of firms' cautious price-setting behavior that reflects the purchasing attitude of consumers who are sensitive to price increases, inflation remains low and induces, through the highly persistent formation of inflation expectations, low expected future inflation and hence low trend inflation, which in turn put downward pressure on present inflation through the Phillips curve.
    Keywords: New Keynesian Phillips curve; Inflation expectations formation; Variable elasticity of demand; VAR-GMM; Bayesian method
    JEL: E31 C11 C26 C52
    Date: 2022–03–22
  9. By: Timothy Kam; Junsang Lee
    Abstract: We study competitive search in goods markets in a heterogeneous-agent monetary model. The model accounts for three stylized facts connecting inflation to consumption inequality, to price dispersion, and to the speed of monetary payments. With competitive search, individuals’ endogenous probabilities on trading events give rise to a trading-opportunity (extensive-margin) force that works in opposite direction to well-known redistributive (intensive-margin) effect of inflation. This implies a new trade-off in response to long-run inflation targets. Welfare falls but liquid-wealth inequality falls and then rises with inflation as an extensive margin of trade dominates the redistributive intensive margin, when inflation is sufficiently high.
    Keywords: Competitive Search; Inflation; Policy Trade-offs; Redistribution; Computational Geometry
    JEL: E0 E4 E5 E6 C6
    Date: 2022–03
  10. By: Kozo Ueda
    Abstract: This study considers the retrogression event of convenience for bank users as a natural experiment and analyzes the effect of this event on cash demand. Using bank account transaction data, we find that branch/ATM consolidations reduce not only the amount of cash withdrawals by past users but also the total expenditure and inflows that include non cash transactions by the same amount. This implies that the retrogression in convenience possibly caused users to shift to other banks for their daily payments. We also document facts about cash withdrawals from ATMs using bank account transaction data. JEL Classification Number : D14, E41 Keywords: money demand, ATM, natural experiment
    Date: 2022–03
  11. By: Maurice Obstfeld (Peterson Institute for International Economics)
    Abstract: In March 2020, international markets seized up with a violence unequaled since the global financial crisis nearly a dozen years before. As economies around the world locked down in the face of the potentially deadly but completely novel SARS-CoV-2 virus, stock markets fell, firms and governments scrambled for cash, liquidity strains emerged even in the market for US Treasurys, and capital flows to emerging-market and developing economies (EMDEs) reversed violently. This paper reviews the evolution of global financial markets since the global financial crisis, changes in academic thinking about these markets' domestic impacts, the strains seen during the COVID-19 crisis, and perils that may lie ahead. A key theme is that stability will be enhanced if the global community embraces reforms that elevate market resilience, rather than depending on skillful policymakers wielding aggressive but ad hoc policy interventions to ride to the rescue again.
    Keywords: COVID-19 crisis, emerging markets, capital flows, international finance, global financial cycle, US dollar, Korean economy
    JEL: E58 F32 F33 F36 F42 F44
    Date: 2022–02
  12. By: Gian Italo Bischi (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Giuseppe Travaglini (Department of Economics, Society & Politics, Università di Urbino Carlo Bo)
    Abstract: In this paper we study the dynamic relationship between the pub- lic debt ratio and the real interest rate. Specifically, by means of a macroeconomic model of simultaneous di erence equations - one for the debt ratio and the other for the real interest rate - we focus on the role of monetary policy, fiscal policy and risk premium in affecting the stability of the debt ratio and the existence of steady states, if any. We show that, in a dynamic framework, fiscal rules may not be enough to control the pattern of the debt ratio, and the adoption of a monetary policy, in the form of an interest rate rule, is necessary to control the pattern of the debt ratio for assuring its sustainability over time. Notably, the creation or disappearance of steady states, or periodic (stable) cycles, can generate scenarios of multistability. While we obtain clear evidence that an active monetary policy has a stabilizing effect on both the real interest rate and the debt ratio, we also find that, in some scenarios, fiscal policy is not sucient to avoid explosive patterns of the debt ratio.
    Keywords: Public debt; Interest rate; Instability; Chaos
    Date: 2022
  13. By: Ralph S. J. Koijen (University of Chicago); Motohiro Yogo (Princeton University)
    Abstract: Using international holdings data, we estimate a demand system for financial assets across 36 countries. The demand system provides a unified framework for decomposing variation in exchange rates, long-term yields, and stock prices, interpreting major economic events such as the European sovereign debt crisis, and estimating the convenience yield on US assets. Macro variables and policy variables (i.e., short-term rates, debt quantities, and foreign exchange reserves) account for 55 percent of the variation in exchange rates, 57 percent of long-term yields, and 69 percent of stock prices. The average convenience yield is 2.15 percent on US long-term debt and 1.70 percent on US equity.
    Keywords: demand system, international
    JEL: E52 F31 G12
    Date: 2020–06
  14. By: Zeyd Boukhers; Azeddine Bouabdallah; Matthias Lohr; Jan J\"urjens
    Abstract: Since the birth of Bitcoin in 2009, cryptocurrencies have emerged to become a global phenomenon and an important decentralized financial asset. Due to this decentralization, the value of these digital currencies against fiat currencies is highly volatile over time. Therefore, forecasting the crypto-fiat currency exchange rate is an extremely challenging task. For reliable forecasting, this paper proposes a multimodal AdaBoost-LSTM ensemble approach that employs all modalities which derive price fluctuation such as social media sentiments, search volumes, blockchain information, and trading data. To better support investment decision making, the approach forecasts also the fluctuation distribution. The conducted extensive experiments demonstrated the effectiveness of relying on multimodalities instead of only trading data. Further experiments demonstrate the outperformance of the proposed approach compared to existing tools and methods with a 19.29% improvement.
    Date: 2022–02
  15. By: Mihai Copaciu (National Bank of Romania); Joana Madjoska; Mite Miteski (National Bank of the Republic of North Macedonia)
    Abstract: This paper describes the theoretical structure and estimation results for a DSGE model for the Macedonian economy. Having as benchmark the model of Copaciu et al. (2015), modified to allow for a fixed exchange rate, we are able to match relatively well the volatility observed in the data. Given the monetary policy regime in place, the debt deflation channel is more important relative to the financial accelerator one when compared to the flexible exchange rate case. The lack of balance sheet effects results in no significant differences in terms of net worth evolution across the two types of entrepreneurs when impulse response functions are evaluated. However, the shocks related to the financial sector appear to be especially important for investment, for the domestic interest rate and interest rate spreads, illustrating the relevance of including financial frictions in the model. With the exchange rate not acting as a shock absorber, the external shocks are more relevant for the CPI inflation and the domestic interest rate. The drop in GDP associated with the pandemic mainly reflects the negative innovations to the consumption preference shock and to the permanent technology shock.
    Keywords: DSGE model, Financial frictions, Partial euroization, Small open economy, Bayesian estimation
    JEL: E0 E3 F0 F4 G0 G1
    Date: 2022
  16. By: Kohnert, Dirk
    Abstract: Francophone Africa has been dominated to date by the political, economic and cultural repercussions of France’s colonial rule. A major instrument to assert France's interests was the upkeep of a common monetary policy and currency, the CFA Franc. Although this has been increasingly resented by African politicians and economists, who wanted to replace it with a West African currency (the 'Eco') the CFA still prevails, due to the social network of French and African political leaders, the ‘messieurs Afrique’ who benefit from the system. The controversial international discussion concentrates on questions of sovereignty and formal political and economic questions. However, the rules of the informal sector proved to be at least as crucial in structuring the CFA-zone as the institutions and policies of the formal economic sector, including its monetary institutions. For decades, for example, prices of French imports were overpriced, due to protection by tied aid and other political and cultural non-tariff trade barriers. The cost of this rent-seeking was carried not only by the French Treasury, who guarantees the peg, but by the French and EU taxpayers, who financed budgetary bail-outs and development aid, and last, but not least, by the poorer African member countries and social strata. Although this applies strictly speaking only to the CFA zone, there are strong indicators that things haven't changed much since then for Francophone Africa in general. The repercussions of rent-seeking in Francophone Africa impact up to date negatively on economic performance. For example, growth levels have been significantly lower for two decades compared with Anglophone competitors.
    Keywords: France, Francophone Africa, post-colonialism, regulated market, special interests, regulatory capture, monetary policy, CFA franc, international trade, free trade area, customs union, African Studies,
    JEL: E26 E31 E42 E52 F13 F15 F22 F35 F45 F52 F54 L13 N17 N97 O17 R11 R58 Z13
    Date: 2022–02–18
  17. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University); Haruo Kondoh (Department of Economics, Seinan Gakuin University)
    Abstract: This study examines the effects of the interaction between unconventional monetary policy and fiscal stimulus on regional employment in Japan. A mixed vector autoregressions (VARs)/event study approach is used. Our empirical findings first show that whereas employment recovery was salient in western Japan, it was not the case in Tokyo metropolitan areas, the country’s main economic hub. Second, we confirm employment recovery on female employees in all regions. However, we do not observe this on male employees, implying the policy interaction did not necessarily increase the number of regular workers, which might suppress a wage hike in the entire country.
    Date: 2022–03
  18. By: Milan Fičura; Jiří Witzany
    Abstract: Non-Maturing Deposit (NMD) pass-through rate represents a key parameter needed in the process of interest rate management of the banking book (IRRBB). NMD interest rates for retail and corporate segments are usually not directly linked to the market interest rates, but depend rather on the bank's marketing strategy, market competition, liquidity, and possibly on other factors. The ratio in which banks adjust their NMD interest rates to the changes of the interbank market interest rates is known as the NMD pass-through rate. The goal of this paper is to analyse the variability of NMD pass-through rates in the 19 Eurozone countries and identify their possible determinants. The pass-through rates are estimated using cointegration analysis based on datasets available from the ECB Statistical Data Warehouse and the results show significant variability between countries. To analyse the determinants of pass-through rates in the Eurozone, the rates are regressed on 9 aggregates of country-level banking sector including concentration, profitability, or funding. Out of the tested predictors, surprisingly only the ratio of Wholesale Funding to Liabilities proves to impact the pass-through rates significantly, with a positive sign, indicating that countries where banks rely more heavily on wholesale funding exhibit higher pass-through of the market interest rate changes to the NMD deposit rates.
    Keywords: Non-Maturing Deposits (NMD), pass-through rate, IRRBB
    JEL: C32 E43 E58 G21
    Date: 2021–11–30
  19. By: Alban Cornier (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Laurent Wagner (FERDI - Fondation pour les Etudes et Recherches sur le Développement International)
    Abstract: The voluntary reallocation of a portion of Special Drawing Rights (SDRs) from advanced countries to developing countries is potentially an important transformation in the international monetary system. Attention has so far been focused on the channels of this reallocation, because of the need to preserve the reserve asset nature of SDRs. The IMF is considering three options (Pazarbasioglu and Ramakrishnan, 2021). First, it is proposed to increase the size of the Poverty Reduction and Growth Trust (PRGT). Second, the IMF could create a new IMF-administered Resilience and Sustainability Trust, or RST: The proposed RST would support policy reforms to help build economic resilience and sustainability in low-income countries and small states, as well as vulnerable middle-income countries. Third, the IMF could channel SDRs to other prescribed SDR holders, comprising 15 organizations including the World Bank, some regional central banks, and multilateral development banks. The three options are non-mutually exclusive.
    Date: 2022–01–31
  20. By: Jens Klose (THM Business School Giessen); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: Policymakers imposed constraints on public life in order to contain the Covid-19 pandemic. At the same time, fiscal and monetary policy implemented a large range of of expansionary measures to limit the economic consequences of the pandemic and stimulate the recovery. In this paper, we assess the response of the equity market as a high-frequency indicator of economic activity to containment and stabilization policies for 29 European economies. We construct indicators of containment and stabilization policies and estimate a range of panel VAR models. The main results are threefold: First, we find that stock markets are highly responsive to containment and stabilization policies. We show that domestic fiscal policy as well as monetary policy support the recovery as reflected in the stock market. Second, expansionary fiscal policy conducted at the European level reduces rather raises stock prices. Third, we estimate the model over subsamples and show that the counter-intuitive stock market response to EU policies is driven by the responses in medium- and high-debt countries. These countries' stock markets are also particularly susceptible to monetary policy announcements.
    Keywords: COVID-19, stabilization policies, lockdown-measures, panel VAR
    JEL: E44 E52 E62
    Date: 2022
  21. By: Antoine Berthou (Centre de recherche de la Banque de France - Banque de France, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Guillaume Horny (Centre de recherche de la Banque de France - Banque de France); Jean-Stéphane Mésonnier (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Centre de recherche de la Banque de France - Banque de France)
    Abstract: Exporting firms face foreign exchange risk when the export contract is invoiced in a foreign currency. For instance, for firms located outside of the United States, the US dollar is often used as a vehicle currency. The cost of hedging against this risk represents an additional trade cost for exporters, which is specific to the targeted destination. In this paper, we exploit an episode of heightened tensions in the USD/EUR foreign exchange market in July 2011, which increased the cost of hedging against US dollar fluctuations for French exporters. Using disaggregated information on bank balance sheets, bank-firm relationships and individual export flows for France, we show that exporters with a higher propensity to use hedging instruments reduced more their exports to "US dollar destinations" after this shock. For the average "treated" individual export flow in our sample, the increased hedging cost is equivalent to a counterfactual rise in trade costs by about 3 percentage points.
    Keywords: Dollar invoicing,Trade finance,Firm-level exports
    Date: 2022–03
  22. By: Kunzmann Vanessa
    Abstract: This paper analyzes the e ects of time-varying fiscal policy behavior on output and consumption multipliers within a monetary union. The framework is that of a standard New Keynesian two-country model with distortionary taxes and Calvo price rigidities. I first show that multipliers differ significantly across fiscal regime mixes that follow a two-state Markov switching process. For each country, I differentiate between active, where spending is mainly deficit-financed, and passive, when spending is mainly tax-financed, behavior. Since this analysis is based on the Euro Area, I abstract from fiscal-monetary interaction and focus on member and union fiscal interdependence, including monetary imperfections and trade e ects. My calibration results show that consumption multipliers to be small and negative. However, the output multiplier is positive and possibly larger than one, depending on the persistence and openness of a country. Moreover, the optimal fiscal regime mix is a combination of active/passive since the negative wealth effect is lowest and the terms of trade loss are the smallest.
    Keywords: oFiscal Policy; Fiscal Multiplier; Multiplier; European Monetary Union; Regime Switching; Fiscal Policy Rules.
    JEL: R0 R11 R14 R21 R31
    Date: 2022–02
  23. By: Massimiliano Renzetti (Banca d'Italia); Andrea Dimartina (Banca d'Italia); Riccardo Mancini (Banca d'Italia); Giovanni Maria Sabelli (Banca d'Italia); Francesco Di Stasio (Banca d'Italia); Carlo Palmers (SWIFT); Faisal Alhijawi (Buna Payment Platform); Erol Kaya (Buna Payment Platform); Christophe Piccarelle (DXC Technology); Stuart Butler (DXC Technology); Jwallant Vasani (Jordan Ahli Bank); Giancarlo Esposito (Intesa Sanpaolo); Alberto Tiberino (Intesa Sanpaolo); Manfredi Caracausi (Intesa Sanpaolo)
    Abstract: This paper presents the results of a joint experiment involving Banca d’Italia and the Arab Regional Payments Clearing and Settlement Organization (ARPSCO), focusing on the settlement of cross‑currency instant payments across different technical platforms. TIPS and Buna are the instant payment settlement platforms with multi-currency features operated by the two organizations respectively. Both platforms started with an initial investigative phase, in order to assess operational policies and the legal and technical implications of implementing a cross‑currency instant payment settlement service, i.e. one in which the debtor and creditor accounts are denominated in two different currencies both eligible for settlement on the platform. For the purpose of the Proof of Concept (PoC), two representatives of the abovementioned market communities, namely Intesa Sanpaolo and Jordan Ahli Bank, participated in their respective capacities of Originator PSP and ultimate Beneficiary PSP for the corresponding currencies, i.e. the euro and the Jordanian dinar. In line with building blocks 13 and 17 of the G20 global roadmap for enhancing cross-border payments (concerning the interlinking of payment systems), the natural evolution of these investigations was to explore possible options for providing the same type of cross-currency service in a cross-platform scenario, i.e. through the interoperability of different instant payment platforms. The PoC described in this paper relates to the implementation of a cross-platform scenario involving TIPS and Buna.
    Keywords: Payment Systems, Instant Payments, Market Infrastructures, Cross-Border Payments.
    JEL: E42
    Date: 2022–03
  24. By: Thanasis Stengos (Department of Economics and Finance, University of Guelph, Guelph ON Canada); Theodore Panagiotidis (University of Macedonia); Georgios Papapanagiotou (University of Macedonia)
    Abstract: We perform a large-scale analysis to evaluate the performance of traditional and Markov-switching GARCH models for the volatility of 292 cryptocurrencies. For each cryptocurrency, we estimate a total of 27 alternative GARCH specifications. We consider models that allow up to three different regimes. First, the models are compared in terms of goodness-of-fit using the Deviance Information Criterion and the Bayesian Predictive Information Criterion. Next, we evaluate the ability of the models in forecasting one-day ahead conditional volatility and Value-at-Risk. The results indicate that for a wide range of cryptocurrencies, time-varying models outperform traditional ones.
    Keywords: Bitcoin, Cryptocurrency, Volatility, GARCH, Markov-switching, Information criteria
    JEL: C12 C13 C15 C22
    Date: 2022

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