nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒05‒09
29 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences By Lena Dräger; Michael J. Lamla; Damjan Pfajfar; Lena Dräger
  2. Central Bank Communication with the General Public: Promise or False Hope? By Alan S. Blinder; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
  3. A Note on Temporary Supply Shocks with Aggregate Demand Inertia By Ricardo J. Caballero; Alp Simsek
  4. Measuring Shocks to Central Bank Independence using Legal Rulings By Stefan Griller; Florian Huber; Michael Pfarrhofer
  6. Nonlinearities in the Exchange Rate Pass-Through: The Role of Inflation Expectations By Christina Anderl; Guglielmo Maria Caporale
  7. Retail Central Bank Digital Currencies (CBDC), Disintermediation and Financial Privacy: The Case of the Bahamian Sand Dollar By Kilian Wenker
  8. The accountability gap: deliberation on monetary policy in Britain and America during the financial crisis By Schonhardt-Bailey, Cheryl; Dann, Christopher; Chapman, Jacob
  9. Are all Central Bank Asset Purchases the Same? Different Rationales, Different Effects By Christophe Blot; Caroline Bozou; Jérôme Creel; Paul Hubert
  10. Network Structure and Fragmentation of the Argentinean Interbank Markets By Pedro Elosegui; Federico Forte; Gabriel Montes-Rojas
  11. Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds By Brandyn Bok; Thomas M. Mertens; John C. Williams
  12. When the United States and the People’s Republic of China Sneeze: International Real and Financial Spillovers in Asia By Beirne, John; Renzhi, Nuobu; Volz, Ulrich
  13. Anchored or Not: A Short Summary of a Bayesian Approach to the Persistence of Inflation By Michael T. Kiley
  15. Forecasting US Inflation Using Bayesian Nonparametric Models By Todd E. Clark; Florian Huber; Gary Koop; Massimiliano Marcellino
  17. The Effects of Conventional and Unconventional Monetary Policy Shocks on US REITs Moments: Evidence from VARs with Functional Shocks By Shixuan Wang; Rangan Gupta; Matteo Bonato; Oguzhan Cepni
  18. Asymmetric Impact of Real Effective Exchange Rate Changes on Domestic Output Revisited: Evidence from Egypt By Sharaf, Mesbah; Shahen, Abdelhalem
  20. Using a Vulnerability Index to Simulate a Reallocation of SDRs? By Alban Cornier; Laurent Wagner
  21. Anchored or Not: How Much Information Does 21st Century Data Contain on Inflation Dynamics? By Michael T. Kiley
  22. Fiscal support and monetary vigilance: Economic policy implications of the Russia-Ukraine war for the European Union By Olivier J Blanchard; Jean Pisani-Ferry
  23. Reinforcement Learning Policy Recommendation for Interbank Network Stability By Alessio Brini; Gabriele Tedeschi; Daniele Tantari
  24. Analysis of the Evolution of Income Disparities Among WAEMU Member Countries By Coulibaly Niénéyéri Mamadou
  25. Journey of Cryptocurrency in India In View of Financial Budget 2022-23 By Varun Shukla; Manoj Kumar Misra; Atul Chaturvedi
  26. The Taper This Time By Barry Eichengreen; Poonam Gupta; Rishabh Choudhary
  27. Bank capital: excess credit and crisis incidence By Ray Barrell; Karim Dilruba
  28. An evolution of global and regional banking networks: A focus on Japanese banks’ international expansion By Harrison, Michael; Nakajima, Jouchi; Shabani, Mimoza
  29. How Do Banks Respond to Capital Regulation? — The Impact of the Basel III Reforms in the United States By Nicholas Fritsch; Jan-Peter Siedlarek

  1. By: Lena Dräger; Michael J. Lamla; Damjan Pfajfar; Lena Dräger
    Abstract: Using a new consumer survey dataset, we show that macroeconomic preferences affect expectations and economic decisions through different channels. While household expectations are on average inversely related to preferences, households with the same inflation or interest rate expectations can differently assess whether the level of the corresponding variable is appropriate or too high/too low. This `hidden heterogeneity' in expectations is correlated with sociodemographic characteristics and affects durable spending and saving decisions. We also show that the variation in inflation preferences can be explained with risk preferences. Overall, this adds a new dimension to the definition of anchored expectations.
    Keywords: macroeconomic expectations, monetary policy perceptions, inflation and interest rate preferences, risk preferences, survey microdata
    JEL: E31 E52 E58 D84
    Date: 2022
  2. By: Alan S. Blinder (Princeton University); Michael Ehrmann (European Central Bank); Jakob de Haan (University of Groningen); David-Jan Jansen (De Nederlandsche Bank)
    Abstract: Central banks are increasingly reaching out to the general public to motivate and explain their monetary policy actions. One major aim of this outreach is to guide inflation expectations; another is to ensure accountability and create trust. This article surveys a rapidly-growing literature on central bank communication with the public. We first discuss why and how such communication is more challenging than communicating with expert audiences. Then we survey the empirical evidence on the extent to which this new outreach does in fact affect inflation expectations and trust. On balance, we see some promise in the potential to inform the public better, but many challenges along the way.
    Keywords: Banks, Monetary Policy
    JEL: D12 D84 E52 E58 G53
    Date: 2022–03
  3. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output gaps expected to emerge once supply recovers. However, the policy does not remain loose throughout the low-supply phase: The central bank undoes the initial interest rate cuts once aggregate demand gains momentum. If inflation also has inertia, the central bank still overheats the economy during the low-supply phase but gradually cools it down over time.
    Keywords: monetary policy, interest rates, temporary supply shocks, aggregate demand inertia, inflation, Taylor rule, divine coincidence, policy frontloading, momentum, output and inflation gaps, the Phillips curve, Covid-19
    JEL: E21 E32 E43 E44 E52 G12
    Date: 2022
  4. By: Stefan Griller; Florian Huber; Michael Pfarrhofer
    Abstract: We investigate the consequences of legal rulings on the conduct of monetary policy. Several unconventional monetary policy measures of the European Central Bank have come under scrutiny before national courts and the European Court of Justice. These lawsuits have the potential to severely impact the scope and flexibility of central bank policies, and central bank independence in a wide sense, with important consequences for the real and financial economy. Since the number of relevant legal challenges is small, we develop an econometric approach that searches for minimum variance regimes which we use to isolate and measure the effects of these events. Our results suggest that legal rulings addressing central bank policies have a powerful effect on financial markets. Expansionary shocks ease financial conditions along various dimensions, and inflation swap reactions suggest inflationary pressures with stronger effects in the short term.
    Date: 2022–02
  5. By: Talknice Saungweme; Nicholas M. Odhiambo
    Abstract: The optimal balance between fiscal and monetary policy in achieving price stability has been contested in literature. In the main, however, it is widely recognised that whether public debts are financed in a monetary way or otherwise, the choice of policy action affects the effectiveness of monetary policy in ensuring price stability. This study contributes to the debate by testing the dynamic causal relationship between public debt and inflation in Tanzania covering the period 1970-2020. The study applies the autoregressive distributed lag (ARDL) bounds testing technique to cointegration and the ECM-based Granger-causality test to explore this relationship. In order to address the omission-of-variable bias, which has been the major methodological deficiency detected in some previous studies, two monetary variables, namely money supply and interest rate, were added as intermittent variables alongside public debt and inflation. The findings from this study show that there is a consistent long-run cointegrating relationship between public debt, inflation, money supply and interest rate in Tanzania. However, the results fail to find evidence of causality between public debt and inflation in Tanzania, irrespective of whether the causality is estimated in the short run or in the long run. The findings of this study, therefore, show that Tanzania’s current debt is not inflationary; hence, policymakers may continue to pursue the desirable fiscal policies necessary for the country’s long-term optimal growth path.
  6. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993-August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger for import prices than for consumer prices. Both seem to be more responsive to exchange rate changes when market expectations of both consumers and producers are considered instead of expectations from consumer surveys only. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries.
    Keywords: exchange rate pass-through, smooth transition regression, nonlinearities, inflation expectations
    JEL: C22 F31 F41
    Date: 2022
  7. By: Kilian Wenker
    Abstract: The fast-growing, market-driven demand for cryptocurrencies worries central banks, as their monetary policy could be completely undermined. Central bank digital currencies (CBDCs) could offer a solution, yet our understanding of their design and consequences is in its infancy. This non-technical paper examines how The Bahamas has designed the Sand Dollar, the first real-world instance of a retail CBDC. It contrasts the Sand Dollar with definition-based specifications. I then develop a scenario analysis to illustrate commercial bank risks. In this process, the central bank becomes a deposit monopolist, leading to high funding risks, disintermediation risks, and solvency risks for the com-mercial banking sector. I argue that restrictions and caps will be the new specifications of a regulatory framework for CBDCs if disintermediation in the banking sector is to be prevented. I identify the anonymity of CBDCs as a comparative disadvantage that will affect their adoption. These findings provide insight into governance problems facing central banks, and coherently lead to the design of the Sand Dollar. I conclude by suggesting that combating cryptocurrencies is a task that cannot be solved by a CBDC.
    Date: 2022–04
  8. By: Schonhardt-Bailey, Cheryl; Dann, Christopher; Chapman, Jacob
    Abstract: We employ multiple methods to gauge empirically the quality of the deliberative process whereby central bankers are held to account for their policy decisions. We use quantitative text analysis on the monetary policy legislative oversight hearing transcripts in the UK and US during the financial crisis. We find that the UK performs significantly better than the US in holding the central bank head to account on monetary policy, namely by engaging in a reciprocal dialogue between the legislative committee and the central banker. We then manually code selected exchanges from these transcripts, according to four criteria of deliberation: partisanship, accountability, narrative and response quality. We find that British MPs invoke almost no partisan rhetoric and target their questions more to relevant aspects of monetary policy; by comparison, their American counterparts seek to appeal more to their constituents and tend to veer away from discussing the details of monetary policy.
    JEL: N0
    Date: 2022–03–21
  9. By: Christophe Blot (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Caroline Bozou (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Paul Hubert (Observatoire Français des Conjonctures Economiques - Centre de recherche de la fondation nationale des sciences politiques, Banque de France - Banque de France - Banque de France)
    Abstract: Does policymakers' rationale for a given policy influence the impact of this policy? To answer this question, we exploit the unique setting provided by ECB asset purchase programs. PSPP and PEPP policies consist in purchases of essentially identical assets, but their objectives differ. The PSPP aimed to reduce deflationary risks, while the PEPP was announced in response to the pandemic-driven economic crisis to alleviate sovereign risks. We assess the effects of both policies on both objectives. We find that the PSPP positively affects inflation swaps while the PEPP negatively impacts sovereign spreads but much less evidence of the opposite pattern.
    Keywords: Monetary policy,Asset prices,Central bank communication,Central bank reaction function,Intermediate objectives
    Date: 2021–12
  10. By: Pedro Elosegui (Banco Central de la República Argentina); Federico Forte (BBVA); Gabriel Montes-Rojas (UBA/CONICET)
    Abstract: This paper studies the network structure and fragmentation of the Argentine interbank market. Both the unsecured (CALL) and the secured (REPO) markets are examined. The aim of this study is to understand their actual fragmentation, as well as its potential implications for monetary policy and financial stability. Applying network analysis, different underlying segments within the market are identified. We approximate the theoretical distribution that better fits the empirical degree distribution of the interbank loan networks. Based on standard topological metrics, it is found that, although the secured market has less participants, its nodes are more densely connected than in the unsecured market. In addition, the interrelationships in the unsecured market are less stable, as it was witnessed during the 2018 currency crisis, making its structure more volatile and vulnerable to negative shocks. The analysis identifies two “hidden” underlying sub-networks within the REPO market: one based on the transactions collateralized by Treasury bonds (REPO-T) and other based on the operations collateralized by Central Bank (CB) securities (REPO-CB). The connectivity indicators were significantly more stable in the REPO-T market than in the REPO-CB segment. The changes in monetary policy stance and monetary conditions seem to have a substantially smaller impact in former than in the latter “sub-market”. Hence, the connectivity levels within the REPO-T market remain relatively unaffected by the (in some period pronounced) swings in the other segment of the market. These results have implications in terms of the interpretation of the interest rates that arise from these markets.
    Date: 2022–03
  11. By: Brandyn Bok; Thomas M. Mertens; John C. Williams
    Abstract: This paper analyzes a new stylized fact: The correlation between uncertainty shocks and changes in inflation expectations has declined and turned negative over the past quarter century. It rationalizes this fact within a standard New Keynesian model with a lower bound on interest rates combined with a decline in the natural rate of interest. With a lower natural rate, the likelihood of the lower bound binding increased and the effects of uncertainty on the economy became more pronounced. In such an environment, increases in uncertainty raise the possibility that the central bank will be unable to eliminate inflation shortfalls following negative demand shocks. As a result, the observed decline in the correlation between uncertainty and inflation expectations emerges. Average-inflation targeting policies can mitigate the longer-run effects of increases in uncertainty on the real economy.
    Keywords: uncertainty shocks; inflation expectations; bonds; macroeconomic drivers
    JEL: E52
    Date: 2022–04–13
  12. By: Beirne, John (Asian Development Bank Institute); Renzhi, Nuobu (Asian Development Bank Institute); Volz, Ulrich (Asian Development Bank Institute)
    Abstract: We examine real and financial spillovers from monetary policy shocks originating in the United States (US) and the People’s Republic of China (PRC) to advanced and emerging economies in Asia over the period 2000 to 2020. Using a structural panel vector autoregression approach, we find that Asian economies overall are more susceptible to spillovers to GDP, inflation, and the current account emanating from monetary policy shocks in the PRC than to those from the US. This is related to high inter-regional trade integration in Asia and is in line with previous research findings. However, while the prevailing literature has highlighted the dominant role of US monetary policy as a transmitter of shocks to global and Asian financial markets, we find more persistence in the response of advanced Asian interest rates to PRC monetary policy shocks. In addition, emerging Asian economies are found to be more susceptible to shocks emanating from the PRC in respect of equity markets and exchange rates. The rising synchronization of Asian financial markets in relation to the PRC as the financial account in the PRC has gradually opened as well as indirect effects via trade and regional value chains help to rationalize our findings.
    Keywords: monetary policy; global financial cycle; international spillovers; US; People’s Republic of China
    JEL: E44 E52 F33 F42
    Date: 2021–11
  13. By: Michael T. Kiley
    Abstract: Consumer price inflation in the United States, as measured by the Consumer Price Index, jumped to just above 7 percent in the twelve months ending in December 2021. Inflation in 2021 reached the highest level seen since the early 1980s. The jump in inflation outside of the range experienced over several decades has raised questions regarding the speed with which, or the degree to which, inflation may return to the 2-percent range consistent with the Federal Reserve's inflation objective.
    Date: 2022–04–08
  14. By: Talknice Saungweme; Nicholas M. Odhiambo
    Abstract: The study seeks to empirically test the hypothesis that public debt has a significant influence on inflation in Zimbabwe, covering the period 1980-2020. The study was motivated by recent trends in public debt and domestic inflation in Zimbabwe, and the need to guide debt-inflation related policy. These latest trends have started to ring alarming bells, which raises questions on the effectiveness of fiscal and monetary policies in bringing macroeconomic stability in the country. Applying the Autoregressive Distributed Lag (ARDL) bounds testing procedure to cointegration and an error correction mechanism (ECM), expanded by incorporating structural breaks, the study finds evidence in support of positive and significant impact of public debt on inflation dynamics in Zimbabwe, particularly in the long run. Based on the findings, public debt dynamics matter for inflation process in Zimbabwe. That is, fiscal policy can be considered to be an important determinant of the effectiveness of monetary policy in Zimbabwe. Therefore, the government should be mindful of increases in public debt as this was found to be inflationary.
  15. By: Todd E. Clark; Florian Huber; Gary Koop; Massimiliano Marcellino
    Abstract: The relationship between inflation and predictors such as unemployment is potentially nonlinear with a strength that varies over time, and prediction errors error may be subject to large, asymmetric shocks. Inspired by these concerns, we develop a model for inflation forecasting that is nonparametric both in the conditional mean and in the error using Gaussian and Dirichlet processes, respectively. We discuss how both these features may be important in producing accurate forecasts of inflation. In a forecasting exercise involving CPI inflation, we find that our approach has substantial benefits, both overall and in the left tail, with nonparametric modeling of the conditional mean being of particular importance.
    Date: 2022–02
  16. By: Emna Trabelsi (Unité de Recherche d'Analyses Quantitatives Appliquées - Université de Tunis)
    Abstract: In recent literature, there is a focus on the macroeconomic effects of macroprudential policy instruments. The innovation of this paper is to study the effects of transparent macroprudential policies on price stability. Our results provide the first empirical evidence that macroprudential transparency can aid to achieve stable inflation in emerging and developing countries. The effect is necessarily transmitted through the reduction of the occurrence of banking crisis. We also record a particular advantage of macroprudential transparency for non-inflation targeting countries. Overall, our results are robust to the use of two proxies of price stability.
    Keywords: macroprudential transparency,price stability,banking crisis,dynamic panel,mediation,bootstrapping
    Date: 2021–03–31
  17. By: Shixuan Wang (Department of Economics, University of Reading, Reading, RG6 6EL, UK); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Matteo Bonato (Department of Economics and Econometrics, University of Johannesburg, Auckland Park, South Africa; IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France); Oguzhan Cepni (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey)
    Abstract: We use a vector autoregressive model with functional shocks, capturing the shift of the entire term structure of interest rates on monetary policy announcement dates, to empirically evaluate the effects of conventional and unconventional monetary policy decisions on the Real Estate Investment Trusts (REITs) markets of the United States (US). Using 5-minute interval intraday data, we analyze not only the impact on REITs returns, but also its realized variance (RV), realized jumps (RJ), realized skewness (RSK), and realized kurtosis (RKU) over the daily period of September 2008 to June 2021. While the effects of conventional monetary policy shocks on the moments of REITs returns tend to conform with economic theories, the same is not necessarily the case with unconventional monetary policy shocks. In addition, though monetary policy shocks have the most persistent and strongest effects on RJ, the extreme behaviour of the REITs market is also observed through RSK and RKU. Moreover, when we look into 10 REITs sectors, there are indeed heterogeneity in terms of the strength of the effect, but not so much in terms of the sign of responses of the various moments compared to the overall market. Our results have important implications for REITs market participants, given its exponential growth as an asset class.
    Keywords: US REITs, Intraday Data, Higher-Moments, Conventional and Unconventional Monetary Policies, VAR with Functional Shocks
    JEL: C32 E43 E52 R3
    Date: 2022–04
  18. By: Sharaf, Mesbah (University of Alberta, Department of Economics); Shahen, Abdelhalem (Alexandria University)
    Abstract: The Egyptian pound has undergone substantial devaluations over the past five years. The Central Bank of Egypt aimed through these currency devaluations to stimulate domestic output. In this paper, we investigate the asymmetric impact of the real effective exchange rate (REER) on Egypt's real domestic output from 1960 to 2020 using a Nonlinear Autoregressive Distributed Lag (NARDL) model. The analyses account for the various channels via which the REER would affect domestic output. Results show evidence of a long-run asymmetry in the output effect of REER changes in which only real currency depreciations have a contractionary impact on output, while the REER has no impact on output in the short run. The Egyptian monetary authority cannot rely on domestic currency depreciation as a policy instrument to boost domestic output.
    Keywords: Asymmetric effects; Domestic output; Egypt; ARDL; Real effective exchange rate
    JEL: E63 F31 F41 F62
    Date: 2022–03–24
  19. By: Talknice Saungweme; Nicholas M. Odhiambo
    Abstract: This paper examines the relationship between inflation and economic growth in Kenya from an analytical and empirical standpoint. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach and the multivariate Granger-causality test using time series data covering 1970-2019. Structural breaks in the time series were also conducted using the Perron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporating structural breaks into time series increases statistical inference's overall validity. Inflation and economic growth in Kenya were found to have structural breaks in 1995 and 1991. These years are marked by Kenya's economic, financial, public sector and institutional reforms. The other findings of the study revealed that inflation has a statistically significant negative influence on long-term economic growth. The multivariate Granger-causality results showed a distinct short-run unidirectional causality from economic growth to inflation in Kenya. In order to mitigate the negative consequences of inflation and the coronavirus on the economy and welfare, the study recommends that Kenya's government should pursue prudent monetary, financial, and fiscal policies.
  20. 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: 2022–03–03
  21. By: Michael T. Kiley
    Abstract: Inflation was low and stable in the United States during the first two decades of the 21st century and broke out of its stable range in 2021. Experience in the early 21st century differed from that of the second half of the 20th century, when inflation showed persistent movements including the "Great Inflation" of the 1970s. This analysis examines the extent to which the experience from 2000-2019 should lead a Bayesian decisionmaker to update their assessment of inflation dynamics. Given a prior for inflation dynamics consistent with 1960-1999 data, a Bayesian decisionmaker would not update their view of inflation persistence in light of 2000-2019 data unless they placed very low weight on their prior information. In other words, 21st century data contains very little information to dissuade a Bayesian decisionmaker of the view that inflation fluctuations are persistent, or "unanchored" . The intuition for, and implications of, this finding are discussed.
    Keywords: Inflation; Phillips Curve; Econometric Modeling
    JEL: E31 C11 E50
    Date: 2022–03–30
  22. By: Olivier J Blanchard (Peterson Institute for International Economics); Jean Pisani-Ferry (Peterson Institute for International Economics)
    Abstract: The economic shock from the war in Ukraine is forcing Europe to face difficult policy choices, according to Olivier Blanchard and Jean Pisani-Ferry. Governments must decide how best to soften the blow of higher energy and food prices, and how much to rely on debt finance. The European Central Bank must decide how to balance the fight against inflation with the need to sustain aggregate demand, in the face of decreases in real income. The authors analyze the impact of the war on the European economy, discuss the pros and cons of policy options, and call for coherence in balancing sanctions, fiscal measures, and monetary policy. They argue for the use of transfers rather than across-the-board subsidies and point to the room for debt finance. They show the potential role of tripartite wage agreement and also argue that monetary policy can remain on its current trajectory but be ready to adjust.
    Date: 2022–04
  23. By: Alessio Brini; Gabriele Tedeschi; Daniele Tantari
    Abstract: In this paper we analyze the effect of a policy recommendation on the performances of an artificial interbank market. Financial institutions stipulate lending agreements following a public recommendation and their individual information. The former, modeled by a reinforcement learning optimal policy trying to maximize the long term fitness of the system, gathers information on the economic environment and directs economic actors to create credit relationships based on the optimal choice between a low interest rate or high liquidity supply. The latter, based on the agents' balance sheet, allows to determine the liquidity supply and interest rate that the banks optimally offer on the market. Based on the combination between the public and the private signal, financial institutions create or cut their credit connections over time via a preferential attachment evolving procedure able to generate a dynamic network. Our results show that the emergence of a core-periphery interbank network, combined with a certain level of homogeneity on the size of lenders and borrowers, are essential features to ensure the resilience of the system. Moreover, the reinforcement learning optimal policy recommendation plays a crucial role in mitigating systemic risk with respect to alternative policy instruments.
    Date: 2022–04
  24. By: Coulibaly Niénéyéri Mamadou (UJloG - Université Jean Lorougnon Guédé)
    Abstract: The main aims of this study are to examine the income disparities’ evolution among the West-African Economic and Monetary Union (WAEMU) countries over the period 1980-2019, and to determine whether the reforms implemented in the region since 1994 have helped to reduce or to accentuate the income disparities among the Member States of the Union. The approach used for the analysis is that of sigma-convergence. It consists in studying the evolution of income dispersion over time, standard deviation being generally used as measure of dispersion. The results obtained show a reduction of per capita income inequalities among the WAEMU Member States. They also point out that the reforms undertaken in the area since 1994 have partly helped to reduce the income disparities among nations. In view of these findings, the study recommends to the community authorities to continue the implementation of the reforms and to reinforce the coordination as well as the harmonization of economical, financial and commercial policies of the Union.
    Keywords: income disparities,income inequalities,Sigma-Convergence and WAEMU
    Date: 2022
  25. By: Varun Shukla; Manoj Kumar Misra; Atul Chaturvedi
    Abstract: Recently, Indian Finance minister Nirmala Sitharaman announced in Union budget 2022-23 that Indian government will put 30% tax (the highest tax slab in India) on income generated from cryptocurrencies. Big financial institutions, experts and academicians have different opinions in this regard. They claim that it would be the end of cryptocurrency market in India or it would be possible that RBI (Reserve Bank of India) may launch its own crypto or digital currency. So in this context, in this article, the journey and future aspects of cryptocurrency in India are discussed and we hope that it will be a reference for further research and discussion in this area.
    Date: 2022–02
  26. By: Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research); Rishabh Choudhary (An independent economist)
    Abstract: On November 3, 2021, the Federal Open Market Committee announced that it would reduce the scale of its asset purchases by $15 billion a month starting immediately. Do emerging markets, such as India, need to prepare for a replay of the taper tantrum of 2013? We show that emerging markets, including India, have strengthened their external economic and financial positions since 2013. At the same time, fiscal deficits are much wider, and public debts are much heavier. As U.S. interest rates now begin moving up, servicing existing debts and preventing the debt-to-GDP ratio from rising still further will become more challenging. Either taxes have to be raised or public spending must be cut to generate additional revenues for debt servicing.
    Keywords: Capital Flows, Emerging Markets, Monetary Policy, Tapering, India
    JEL: F32 F41 F42 F62
    Date: 2021–11–03
  27. By: Ray Barrell (NIESR - Research Centre of the National Institute of Economic and Social Research - National Institute of Economic and Social Research); Karim Dilruba
    Abstract: There are large and long-lasting negative effects on output from recurrent financial crises in market economies. Policy makers need to know if these financial crises are endogenous and subject to policy interventions or are exogenous events like earthquakes. We survey the literature about the links between credit growth and crises over the last 130 years. We then go on to look at the determinants of financial crises both narrowly and broadly defined in market economies, stressing the roles of bank capital, available on book liquidity, property price bubbles and current account deficits. We look at the role of credit growth, which is often seen as the main link between the macroeconomy and crises, and stress that it is largely absent. We look at the role of the core factors discussed above in market economies from 1980 to 2017. We suggest that crises are largely unrelated to credit developments but are influenced by banking sector behaviour. We conclude that policy makers need to contain banking excesses, not constrain the macroeconomy by directly reducing bank lending.
    Keywords: Financial stability,Banking crises,Macroprudential policy
    Date: 2020–09
  28. By: Harrison, Michael; Nakajima, Jouchi; Shabani, Mimoza
    Abstract: This paper examines the possible spillover effects of the global and regional crossborder claims of Japanese banks on domestic financial stability. We contribute to the existing literature by constructing a global banking network and applying the Spinglass methodology to detect communities formed within the network. Furthermore, we employ a novel spatial econometric approach, namely, a timevarying spatial autoregressive (SAR) model that captures the evolution of spillover effects over time. Our empirical results point to the dominant role of Japanese banks in the global banking network and the evolution of the East Asian regional banking network. Furthermore, our findings show considerable variation in the degree of influence of both the global and regional banking networks over time.
    Keywords: banking networks, spillover effect, spatial autoregression
    JEL: C23 G21 F34 R11
    Date: 2022–04
  29. By: Nicholas Fritsch; Jan-Peter Siedlarek
    Abstract: Understanding banks’ responses to capital regulation is essential for regulators to use this key tool of modern banking regulation effectively. We study how and when US banks responded to changes to the way capital ratios are measured, changes that were introduced as part of the adoption of Basel III. We find that small banks — those below USD 10bn — responded neither before nor after the release of the new rules to the change in measured capital they experienced under the new rules. In contrast, we show that regional banks — those with total assets between USD 10bn and USD 50bn — adjusted their capital ratios to partially compensate for the changes resulting from the new rules: On average, if a bank’s capital ratio when measured under the new rules was lower than under the old rules, then the bank took steps to increase its capital ratio, compared to a bank whose capital ratio did not change with the new rules. This adjustment took place prior to the publication of the specific language applicable to US banks, suggesting that the changes were largely expected by that time. Both groups of banks responded in the periods following the release of the new US rules in relation to their exposure to mortgage servicing rights, suggesting that the severe treatment of this asset class was not expected. The bank responses we estimate take place well before the Basel III rules started to come into force after 2014, emphasizing the importance of policy announcements in shaping bank behavior.
    Keywords: bank regulation; bank capital; capital requirements
    JEL: G21 G28
    Date: 2022–04–20

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