nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒04‒18
25 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Documentation Paper: Representative Survey on Attitudes and Knowledge About Inflation and Monetary Policy in Germany Conducted in December 2021 By Bernd Hayo
  2. CBDC as Competitor for Bank Deposits and Cryptocurrencies By Max Fuchs
  3. A reassessment of monetary policy surprises and high-frequency identification By Bauer, Michael D.; Swanson, Eric T.
  4. Money markets and bank lending: evidence from the adoption of tiering By Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Giannetti, Mariassunta; Schumacher, Julian
  5. Revisiting the Properties of Money By Hull, Isaiah; Sattath, Or
  6. When domestic and foreign QE overlap: evidence from Sweden By Di Casola, Paola; Stockhammar, Pär
  7. Forward guidance shocks By Mirela Miescu
  8. Climate Actions, Market Beliefs and Monetary Policy By Barbara Annicchiarico; Fabio Di Dio; Francesca Diluiso
  9. Inflation Targeting or Fiscal Activism? By Billi, Roberto M.
  10. Alternative Monetary-Policy Instruments and Limited Credibility: An Exploration By Javier García-Cicco
  11. Understanding trend inflation through the lens of the goods and services sectors By Yunjong Eo; Luis Uzeda; Benjamin Wong
  12. Exchange Rate Pass-through Under the Unconventional Monetary Policy Regime By YOSHIDA Yushi; Weiyang ZHAI; SASAKI Yuri; Siyu ZHANG
  13. The Liquidity of the Government Bond Market – What Impact Does Quantitative Easing Have? Evidence from Sweden By Blix Grimaldi, Marianna; Crosta, Alberto; Zhang, Dong
  14. Crises, credit booms and monetary regime By Youssef Ghallada; Alexandre Girard; Kim Oosterlinck
  15. Five Facts about the Distributional Income Effects of Monetary Policy By Amberg, Niklas; Jansson, Thomas; Klein, Mathias; Rogantini Picco, Anna
  16. Domestic and External Monetary Policy Shocks and Economic Inequality in the Republic of Korea By Hahm, Joon-Ho; Lee, Dong Jin; Park, Cyn-Young
  17. The cost of disinflation in a small open economy vis-à-vis a closed economy By Faryna, Oleksandr; Jonsson, Magnus; Shapovalenko, Nadiia
  18. Monetary policy, macroprudential policy and financial stability By Laeven, Luc; Maddaloni, Angela; Mendicino, Caterina
  19. Monetary policy, labor income redistribution and the credit channel: Evidence from matched employer-employee and credit registers By Martina Jasova; Caterina Mendicino; Ettore Panetti; José-Luis Peydró; Dominik Supera
  20. The Impacts of Financial Crises on the Trilemma Configurations By Joshua AIZENMAN; Menzie CHINN; ITO Hiroyuki
  21. How Money relates to value? An empirical examination on Gold, Silver and Bitcoin By José Alves; João Quental Gonçalves
  22. You can't always get what you want (where you want it): Cross-border effects of the US money market fund reform By Fricke, Daniel; Greppmair, Stefan; Paludkiewicz, Karol
  23. Financial Literacy and Cash Holdings in Turkey By Mustafa Recep Bilici; Saygin Cevik
  24. Capital controls, corporate debt and real effects By Andrea Fabiani; Martha López Piñeros; José-Luis Peydró; Paul E. Soto
  25. Investigating How Exchange Rates Affected the Japanese Economy after the Advent of Abenomics By Willem THORBECKE

  1. By: Bernd Hayo (University of Marburg)
    Abstract: This paper provides background information on, and basic descriptive statistics for, a representative survey of the German population conducted on my behalf by GfK in December 2021. The survey covers various topics having to do with inflation and monetary policy, including: 1) inflation perceptions and expectations, 2) interest in and subjective, as well as objective, knowledge about monetary policy, 3) attitude to and knowledge about the ECB’s monetary policy reform in 2021, 4) trust in the ECB and perception of its independence, 5) importance of climate-change-related measures, and 6) an experiment evaluating whether information about the ECB’s monetary policy reform in 2021 reduces people’s trust in the ECB and their perception of its independence. A broad range of socio-demographic and economic indicators are collected too.
    Keywords: Public opinion survey, Attitudes, Inflation perception, Inflation expectation, Monetary policy, ECB’s monetary policy reform in 2021, Germany
    JEL: D90 E31 E58 E71
    Date: 2022
  2. By: Max Fuchs (University of Kassel)
    Abstract: Private cryptocurrencies allow for payments without the need for a financial institution. These institutions, the central bank and retail banks, may thus observe a decline in the demand for their payments systems, i.e. cash and deposits. Using the monetary search model of Lagos and Wright (2005), we show that the central bank is able to tilt the playing field until it wins. By introducing an interest-bearing central bank digital currency (CBDC), the central bank is able to provide a payment system which is superior to cryptocurrencies. Miners cannot match the CBDC rate and go bankrupt. Retail banks, on the other hand, face lower profits but survive in the equilibrium. In addition, it can be welfare-improving to kick out cryptocurrencies by an interest-bearing CBDC.
    Keywords: CBDC, cryptocurrencies, welfare analysis
    JEL: E41 E42 E51 E52 E58
    Date: 2022
  3. By: Bauer, Michael D.; Swanson, Eric T.
    Abstract: High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. We address these concerns in two ways: First, we expand the set of monetary policy announcements to include speeches by the Fed Chair, which essentially doubles the number and importance of announcements in our dataset. Second, we explain the predictability of the monetary policy surprises in terms of the "Fed response to news" channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data. Our subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on financial markets are largely unchanged. Second, estimates of the macroeconomic effects of monetary policy are substantially larger and more significant than what most previous empirical studies have found.
    Keywords: FOMC,policy rule,monetary transmission,SVAR,external instruments
    JEL: E43 E52 E58
    Date: 2022
  4. By: Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Giannetti, Mariassunta; Schumacher, Julian
    Abstract: Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of access to the money market for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged a reallocation of liquidity toward banks with unused exemptions. This ultimately decreased the fragmentation in the money market and enhanced the monetary policy transmission mechanism. The increased access to money market by banks with unused allowances incentivizes them to extend more credit than other banks, including banks with excess liquidity whose valuations increase the most. JEL Classification: G2, E5
    Keywords: bank lending, Money market, negative interest rate policy
    Date: 2022–02
  5. By: Hull, Isaiah (Research Department, Central Bank of Sweden); Sattath, Or (Department of Computer Science)
    Abstract: The properties of money commonly referenced in the economics literature were originally identified by Jevons (1876) and Menger (1892) in the late 1800s and were intended to describe physical currencies, such as commodity money, metallic coins, and paper bills. In the digital era, many non-physical currencies have either entered circulation or are under development, including demand deposits, cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), in-game currencies, and quantum money. These forms of money have novel properties that have not been studied extensively within the economics literature, but may be important determinants of the monetary equilibrium that emerges in forthcoming era of heightened currency competition. This paper makes the first exhaustive attempt to identify and define the properties of all physical and digital forms of money. It reviews both the economics and computer science literatures and categorizes properties within an expanded version of the original functions-and-properties framework of money that includes societal and regulatory objectives.
    Keywords: Money; CBDC; Digital Currencies; Quantum Money; Currency Competition
    JEL: E40 E42 E50 E51
    Date: 2021–11–01
  6. By: Di Casola, Paola (Monetary Policy Department, Central Bank of Sweden); Stockhammar, Pär (Monetary Policy Department, Central Bank of Sweden)
    Abstract: We estimate the effects of domestic and foreign quantitative easing (QE) programmes on a small open economy, Sweden, using a structural BVAR model. Domestic QE raised GDP, lowered unemployment and depreciated the currency, while effects on inflation are less clear. The ECB QE had large positive effects on both GDP and inflation in Sweden, also due to the endogenous response of domestic QE to the foreign one. In terms of transmission channels, domestic QE improved lending conditions for households and lowered expected future rates, while foreign QE improved financing conditions for firms.
    Keywords: Quantitative Easing; international spillovers; transmission channels; small open economy; Bayesian VAR models
    JEL: E44 E52 F41 G15
    Date: 2021–05–01
  7. By: Mirela Miescu
    Abstract: I estimate the effects of a forward guidance (FG) shock and compare it with a traditional monetary policy (MP) shock. I find that FG shocks have smaller effects on macroeconomic aggregates than MP shocks. Structural identification is reached by a novel heteroscedascticity-based approach that exploits (i) the introduction of the forward guidance in the form of a published policy-rate path in the US in January 2012; and (ii) the zero lower bound (ZLB) constraints. My findings are consistent with the predictions of the latest theories about the FG puzzle.
    Keywords: forward guidance, Monetary policy, event study, heteroscedasticity, structural VAR
    JEL: E52 E32 C32
    Date: 2022
  8. By: Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Fabio Di Dio (Institute for Globally Distributed Open Research and Education (IGDORE)); Francesca Diluiso (Mercator Research Institute on Global Commons and Climate Change)
    Abstract: This paper studies the role of expectations and monetary policy on the economy’s response to climate actions. We show that in a stochastic environment and without the standard assumption of perfect rationality of agents, there is more uncertainty regarding the path and the economic impact of a climate policy, with a potential threat to the ability of central banks to maintain price stability. Market beliefs and behavioral agents increase the trade-offs inherent to the chosen mitigation tool, with a carbon tax entailing more emissions uncertainty than in a rational expectations model and a cap-and-trade scheme implying a more pronounced pressure on allowances prices and inflation. The impact on price stability is worsened by delays in the implementation of stringent climate policies, by the lack of confidence in the ability of central banks to keep inflation under control, and by the adoption of monetary rules tied to expectations rather than current macroeconomic conditions. Central banks can implement successful stabilization policies that reduce the uncertainty surrounding the impact of climate actions and support the greening process while staying within their mandate.
    Keywords: Climate policy; monetary policy; expectations; inflation; market sentiments; business cycle.
    JEL: D83 Q50 E32 E71
    Date: 2022–03–25
  9. By: Billi, Roberto M. (Research Department, Central Bank of Sweden)
    Abstract: I study the welfare performance of a policy regime of fiscal activism in which fiscal policy acts as an automatic stabilizer and controls inflation, while monetary policy pegs the nominal interest rate. When evaluated through the lens of a standard New Keynesian model, accounting for price and wage rigidities and for a zero lower bound (ZLB) on the nominal interest rate, fiscal activism can substantially outperform inflation targeting in the face of both demand shocks and technology shocks. Fiscal activism can also eliminate the occurrence of ZLB episodes.
    Keywords: automatic stabilizers; Öscal and monetary interactions; government debt
    JEL: E24 E31 E52 E63
    Date: 2022–03–01
  10. By: Javier García-Cicco (Universidad del CEMA)
    Abstract: We evaluate the dynamics of a small and open economy under simple rules for alternative monetary-policy instruments, in a model with imperfectly anchored expectations. The inflation-targeting consensus indicates that interest-rate rules are preferred, instead of using either a monetary aggregate or the exchange rate as the main instrument; with arguments usually presented under rational expectations and full credibility. In contrast, we assume agents use econometric models to form inflation expectations, capturing limited credibility. In particular, we emphasize the exchange rate’s role in shaping medium- and long-term inflation forecasts. We compare the dynamics after a shock to external-borrowing costs (arguably one of the most important sources of fluctuations in emerging countries) under three policy rules: a Taylor-type rule for the interest rate, a constant-growth-rate rule for monetary aggregates, and a fixed exchange rate. The analysis identifies relevant trade-offs in choosing among alternative instruments, showing that the relative merits of each of them is indeed influenced by how agents form inflation-related expectations.
    Date: 2022–02
  11. By: Yunjong Eo; Luis Uzeda; Benjamin Wong
    Abstract: We distinguish between the goods and services sectors in an otherwise standard unobserved components model of U.S. inflation. Our main finding is that, while both sectors used to contribute to the overall variation in aggregate trend inflation, since the 1990s this variation has been predominantly driven by the services sector. We pinpoint two key changes in sector-specific inflation dynamics which led to our main finding: (i) a large fall in the volatility of trend goods inflation; and (ii) the disappearance of comovement between trend goods and trend services inflation. Our results are robust to inflation developments associated with the recent Covid-19 pandemic.
    Keywords: sectoral trend inflation, unobserved components model, disaggregated inflation
    JEL: C11 C32 E31 E52
    Date: 2022–04
  12. By: YOSHIDA Yushi; Weiyang ZHAI; SASAKI Yuri; Siyu ZHANG
    Abstract: We apply the structural VAR model to Japan under the unconventional monetary policy regime, 2000Q1 and 2019Q4. In addition to the traditional sign restrictions, we impose narrative sign restrictions based on five phenomenal economic episodes. Estimated exchange rate pass-through induced by monetary policy shock or exogenous exchange rate shock is consistent with the conventional view, i.e., a Japanese yen depreciation induces inflation at the consumer level. On the other hand, we found evidence of perverse exchange rate pass-through induced by demand shock. A ten percent exchange rate depreciation driven by weak domestic demand is associated with a one percent deflation at the consumer level. The magnitude of the latter effect is greater than the former. This demand-shock-induced exchange rate pass-through effect may have undermined the continuous efforts of the Bank of Japan to achieve the target of a two percent inflation rate.
    Date: 2022–03
  13. By: Blix Grimaldi, Marianna (Swedish National Debt Office); Crosta, Alberto (Swedish Financial Supervisory Authority); Zhang, Dong
    Abstract: We consider the effects of quantitative easing on the liquidity of the Swedish government bonds. To capture multiple dimensions of liquidity we use several measures built on a unique and highly granular transaction-based dataset. We find that the Riksbank’s purchases of government bonds improved liquidity, but only to a point. In fact, the deterioration in the level of market liquidity from quantitative easing via the scarcity effect is significantly larger than the improvement from the demand effect. We find that such effects are nonlinear; they tend to be amplified when the share of the central bank holdings is larger than a threshold (40 percent).
    Keywords: Market Liquidity; Government Bond Market; Quantitative Easing; Public Debt Management
    JEL: E52 E58 G12
    Date: 2021–05–01
  14. By: Youssef Ghallada; Alexandre Girard; Kim Oosterlinck
    Abstract: In theory credit booms, and the crises associated to these booms, should occur more frequently in Fiat monetary regimes than in regimes, such as the Gold Standard, where money creation is constrained. In this note, we investigate whether the importance of the credit boom factor, as an early warning indicator (EWI) of systemic financial crises, varies across monetary regimes for a sample of 17 developed countries over the 1870-2016 period. We find no evidence of a difference between monetary regime for credit-driven crises and this both for the occurrence and the severity of crises.
    Date: 2021–03–01
  15. By: Amberg, Niklas (Research Department, Central Bank of Sweden); Jansson, Thomas (Research Department, Central Bank of Sweden); Klein, Mathias (Research Department, Central Bank of Sweden); Rogantini Picco, Anna (Research Department, Central Bank of Sweden)
    Abstract: We use Swedish administrative individual-level data to document five facts about the distributional income effects of monetary policy. (i) The effects of monetary policy shocks are U-shaped with respect to the income distribution—i.e., expan sionary shocks increase the incomes of high- and low-income individuals relative to middle-income individuals. (ii) The large effects in the bottom are accounted for by the labor-income response and (iii) those in the top by the capital-income response. (iv) The heterogeneity in the labor-income response is due to the earnings heterogeneity channel, whereas (v) that in the capital-income response is due to the income composition channel.
    Keywords: Monetary policy; income inequality; heterogeneous agents; administrative data
    JEL: C55 E32 E52
    Date: 2021–05–01
  16. By: Hahm, Joon-Ho (Yonsei University); Lee, Dong Jin (Sangmyung University); Park, Cyn-Young (Asian Development Bank)
    Abstract: This paper investigates the effects of monetary policy shocks on income and wealth inequalities in the Republic of Korea. Using the detailed Household Income and Expenditure Survey and Korean Labor and Income Panel Study data, we construct measures of income and wealth inequality for the Korean economy. Empirical results show that both domestic and external monetary policy shocks exert significant countercyclical effects on income inequality. For wealth inequality, however, the effects are very different. Whereas domestic monetary policy shocks are insignificant, external policy shocks proxied by fluctuations in net capital flows seem to have significant effects on net wealth inequality.
    Keywords: monetary policy; income inequality; wealth inequality; external monetary policy shock; emerging market economies
    JEL: D31 E44 E52 F42 G51
    Date: 2022–04–01
  17. By: Faryna, Oleksandr (National Bank of Ukraine and National University of Kyiv-Mohyla Academy); Jonsson, Magnus (Monetary Policy Department, Central Bank of Sweden); Shapovalenko, Nadiia (National Bank of Ukraine)
    Abstract: We use a standard new Keynesian model to evaluate the cost of disinflation – measured by the sacrifice ratio, the central bank’s loss function, and the welfare cost – in a small open economy vis-à-vis a closed economy. Disinflation is either more costly or less beneficial in the small open economy, but the results vary quantitatively depending on the measure and the economic environment. Optimised simple monetary policy rules imply that the relative weight on inflation stabilisation should be lower in the small open economy if the central bank minimises the loss function, but higher if it maximises welfare.
    Keywords: Disinflation; sacrifice ratio; central bank’s loss function; welfare cost; small open economy; new Keynesian model; optimised rules; imperfect credibility
    JEL: E31 E50 F41
    Date: 2021–11–01
  18. By: Laeven, Luc; Maddaloni, Angela; Mendicino, Caterina
    Abstract: Recent research developed under the ECB research task force on Monetary Policy, Macroprudential Policy and Financial Stability highlights the existence of trade-offs and spillovers that monetary policy and macroprudential authorities face when deciding on their policy interventions. Monetary policy measures are key to support the supply of credit to the economy, but they could also have unintended consequences on financial stability risks. Macroprudential policies are instead effective in limiting financial stability risks, but they could also reduce the length of economic expansions by preventing credit from flowing to productive economic activities. In addition, since monetary and macroprudential policies transmit to the broad economy via the financial system, they unavoidably affect each other’s effectiveness. Taking these factors into account is key for the design and implementation of both policies. JEL Classification: E3, E44, G01, G21
    Keywords: financial frictions, policy trade-offs, risk taking, systemic risk
    Date: 2022–02
  19. By: Martina Jasova; Caterina Mendicino; Ettore Panetti; José-Luis Peydró; Dominik Supera
    Abstract: This paper documents the redistributive effects of monetary policy on labor market outcomes via the credit channel. For identification, we exploit matched administrative datasets in Portugal - employee-employer and credit registers - and monetary policy since the Eurozone creation in 1999. We find that softer monetary policy improves worker labor market outcomes (wages, hours worked and firm employment) more in small and young firms, which are more financially constrained. Within small and young firms, the wage effects accrue to incumbent workers, in line with the back-loaded wage mechanism. Consistent with the capital-skill complementarity mechanism, we document an increase in skill premium and show that financially constrained firms increase both physical and human capital investment by most. Our findings uncover a central role for both the firm-balance sheet and the bank lending channels of the monetary policy transmission to labor income inequality, with state-dependent effects that are substantially stronger during crisis times. Importantly, we do not find any redistributive effects for firms without bank credit.
    Keywords: Monetary policy, labor income inequality, firm balance sheet channel, bank lending channel, capital-skill complementarity.
    JEL: D22 D31 E52 G01 G21
    Date: 2021–09
  20. By: Joshua AIZENMAN; Menzie CHINN; ITO Hiroyuki
    Abstract: Over the years, policymakers have explored various combinations of varying degrees of monetary policy independence, exchange rate stability, and financial openness, while recognizing that not all three policies can be achieved to the fullest extent – this is known as the "monetary trilemma" hypothesis. In recent years, holding international reserves (IR) has become an important policy instrument as a buffer or insurance against liquidity shortages. Significant and fundamental economic events such as currency crises have often changed the policy mix. In this paper, we find that countries' policy mixes have been diverse and have varied over time from the perspective of both the monetary trilemma and IR holdings. We then illustrate how the combination of the three trilemma policies and IR holding drastically changed before and after the Asian Financial Crisis (AFC). However, the Global Financial Crisis (GFC) did not lead to a drastic change in the policy arrangements. We find that countries that faced large terms of trade shocks or negative economic growth during the crisis increase IR holding in the post-AFC. Countries that had negative growth during the crisis also tend to pursue more exchange rate flexibility and more open financial markets. This characteristic is true for commodity exporters, but not for manufacturing exporters. Countries with large current account deficits (i.e., "large capital borrowers") tended to be more sensitive to economic growth at the time of the AFC. Countries that are under IMF stabilization programs or those with sovereign wealth funds tend to hold more IR. These characteristics were not found in the aftermath of the GFC. In general, countries increased their IR holdings after the GFC, but did not respond to the during-crisis economic and institutional conditions.
    Date: 2022–03
  21. By: José Alves; João Quental Gonçalves
    Abstract: The present work offers a review on two divergent schools of thought regarding the subject of money and highlights why understanding it is important to grasp the workings and nature of the concept of money. We adopt a spontaneous order perspective on social institutions, considering money as one. Such framework allows for the construction of axioms from which we formulate our problem allowing us to ask how old forms of money such as Gold and Silver hold up in today’s world regarding their hedging properties. Moreover, we also do so for Bitcoin since we consider it an appropriate asset due to its specific characteristics and its (at the time of writing) more than 10-year life span. We resort to the Autoregressive Distributed Lag (ARDL) methodology in order to study our three assets in the context of the US dollar and the US Economy for two different time periods. We analyse price dynamics from 1980 to 2020 for gold and silver resorting to annual data. Regarding bitcoin we employ quarterly data from 2009 to 2020. We conclude that the theories that explain what money is, how it comes to be so and how certain types of “money assets” may serve both as an indirect hedge against inflation in the two interpretations of the word and as a “stock of value” have merits that might deserve further investigation.
    Keywords: Money; Inflation; Gold; Silver; Bitcoin
    JEL: B25 D46 E42 E51
    Date: 2022–03
  22. By: Fricke, Daniel; Greppmair, Stefan; Paludkiewicz, Karol
    Abstract: This paper documents significant cross-border effects of the 2014 US money market fund (MMF) reform on MMFs in the euro area. As US-based prime MMFs became less money-like due to the reform, euro area-based prime MMFs received large inflows from foreign investors. These cross-border flows were largely motivated by the search for stable net asset value instruments rather than by the introduction of gates and fees. Consistent with an easing of competitive pressure, institutional prime funds in the euro area reduced their risk-taking. However, the industry became more concentrated overall and more exposed to run risk from foreign investors. This risk materialized during the COVID-19-induced stress period.
    Keywords: cross-border effects,regulation,money market funds,risk-taking
    JEL: E41 G23 G28
    Date: 2022
  23. By: Mustafa Recep Bilici; Saygin Cevik
    Abstract: This paper examines the effect of financial literacy level on cash holdings in Turkey. Utilizing the Methods of Payment Survey, which includes both financial literacy and cash-related data, we first investigate the fundamentals of financial literacy in Turkey. Based on the performance on financial literacy questions, we categorize respondents into three groups. Subsequently, we analyze how cash holding behavior differs among financial literacy groups. Our results reveal that financially literate respondents tend to hold less cash on hand and store more cash elsewhere. Moreover, card ownership increases through financial literacy and the change in payment behavior of financially literate respondents is more significant during Covid-19 pandemic. The results imply that promoting financial literacy may result in less cash usage at points of sale accompanied by the currency in circulation growth, due to the overwhelming effect of increased non-transactional demand following a positive change in financial literacy level.
    Keywords: Financial literacy, Money demand, Cash demand
    JEL: C50 E41 G53
    Date: 2022
  24. By: Andrea Fabiani; Martha López Piñeros; José-Luis Peydró; Paul E. Soto
    Abstract: Non-US firms have massively borrowed dollars (foreign currency, FX), which may lead to booms and crises. We show the real effects of capital controls, including prudential benefits, through a firm-debt mechanism. Our identification exploits the introduction of a tax on FX-debt inflows in Colombia before the global financial crisis (GFC), and administrative, proprietary datasets, including loan-level credit register data and firm-level information on FX-debt inflows and imports/exports. Our results show that capital controls substantially reduce FX-debt inflows, particularly for firms with larger ex-ante FX-debt exposure. Moreover, firms with weaker local banking relationships cannot substitute FX-debt with domestic-debt and experience a reduction in total debt and imports upon implementation of the policy. However, our results suggest that, by preemptively reducing pre-crisis firm-level debt, capital controls boost exports during the subsequent GFC, especially among financially-constrained firms.
    Keywords: Capital controls; corporate FX-debt; real effects; macroprudential; capital inflows
    JEL: F3 F38 F4 F6 G01 G15 G21 G28
    Date: 2021–09
  25. By: Willem THORBECKE
    Abstract: News of aggressive monetary easing by the Bank of Japan in late 2012 contributed to a 45 percent depreciation of the Japanese yen relative to the U.S. dollar. This paper investigates how the depreciation affected the Japanese economy. Exports responded much less than predicted, especially for sectors related to transportation equipment. Imports also responded less than predicted, and the sum of export and import elasticities are too small to meet the Marshall-Lerner condition. The depreciation raised returns for many Japanese stocks, with the response being largest for automobile stocks. The depreciation also raised aggregate Japanese stock returns by twice as much after 2013 as before. This indicates that responses that corporate Japan made to swings in the yen such as transferring production abroad have been good for profitability.
    Date: 2022–01

This nep-mon issue is ©2022 by Bernd Hayo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.