nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒06‒27
thirty papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Look who’s Talking: Individual Committee members’ impact on inflation expectations By Dooruj Rambaccussing; Craig Menzies; Andrzej Kwiatkowski
  2. The Augmented Bank Balance-Sheet Channel of Monetary Policy By Carla Soares; Diana Bonfim; Christian Bittner; Florian Heider; Glenn Schepens; Farzad Saidi
  3. Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis By Matthew Malloy; Francis Martinez; Mary-Frances Styczynski; Alex Thorp
  4. Liquidity Traps, Prudential Policies, and International Spillovers By Javier Bianchi; Louphou Coulibaly
  5. The Macroeconomic Expectations of Firms By Bernardo Candia; Olivier Coibion; Yuriy Gorodnichenko
  6. Monetary-Based Asset Pricing: A Mixed-Frequency Structural Approach By Francesco Bianchi; Sydney C. Ludvigson; Sai Ma
  7. Monetary Policy and Homeownership: Empirical Evidence,Theory, and Policy Implications By Daniel A. Dias; Joao B. Duarte
  8. How Did It Happen?: The Great Inflation of the 1970s and Lessons for Today By Edward Nelson
  9. Structural relationships between cryptocurrency prices and monetary policy indicators By Jennifer Castle; Takamitsu Kurita
  10. Global Stagflation By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
  11. Public Debt and Inflation Dynamics: Empirical Evidence from Zimbabwe By Talknice Saungweme; Nicholas M. Odhiambo
  12. Inflation and Economic Growth in Kenya: An Empirical Examination By Talknice Saungweme; Nicholas M. Odhiambo
  13. Settlement Balances Deconstructed By Parnell Chu; Grahame Johnson; Scott Kinnear; Karen McGuinness; Matthew McNeely
  14. Substitutability between Balance Sheet Reductions and Policy Rate Hikes: Some Illustrations and a Discussion By Edmund S. Crawley; Etienne Gagnon; James Hebden; James Trevino
  15. INFLATION VOLATILITY, QUALITY OF INSTITUTIONS, AND OPENNESS By Mujahid, Hira; Uddin, Imam; Tabash, Mosab; Ayubi, Sharique; Asad, Muhammad
  16. Drivers of Inflation: From Roots to Regressions By Abdul Jalil
  17. Financial Literacy and Cash Holdings in Turkey By Mustafa Recep Bilici; Saygin Cevik
  18. The Corona debt conundrum in the Eurozone: Limits to stabilisation by monetary policy and the search for alternatives By Tokarski, Paweł; Wiedman, Alexander
  19. The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications By Michael Weber; Francesco D’Acunto; Yuriy Gorodnichenko; Olivier Coibion
  20. A Multivariate Hawkes Process Model for Stablecoin-Cryptocurrency Depegging Event Dynamics By Connor Oxenhorn
  21. Real Effects of Stabilizing Private Money Creation By Chenzi Xu; He Yang
  22. Sources and Channels of Nonlinearities and Instabilities of the Phillips Curve: Results for the Euro Area and Its Member States By Reichold, Karsten; Wagner, Martin; Damjanović, Milan; Drenkovska, Marija
  23. Public Debt and Inflation Nexus in Nigeria: An ARDL Bounds Test Approach By Akingbade U. Aimola; Nicholas M. Odhiambo
  24. Foreign Exchange Interventions: The Long and the Short of It By Patrick Alexander; Sami Alpanda; Serdar Kabaca
  25. Public Debt and Inflation: Empirical Evidence from Ghana By Akingbade U. Aimola; Nicholas M. Odhiambo
  26. The transmission of financial shocks and leverage of financial institutions: An endogenous regime switching framework By Kirstin Hubrich; Daniel F. Waggoner
  27. Treasury Supply Shocks and the Term Structure of Interest Rates in the UK By Andras Lengyel
  28. One scheme fits all: a central fiscal capacity for the EMU targeting eurozone, national and regional shocks By Beetsma, Roel; Cimadomo, Jacopo; van Spronsen, Josha
  29. The Phillips Curve during the Pandemic: Bringing Regional Data to Bear By Patrick C. Higgins
  30. Payment Habits of the Hungarian Households in 2020 By Vivien Deak; Istvan Nemecsko; Tamas Vegso

  1. By: Dooruj Rambaccussing; Craig Menzies; Andrzej Kwiatkowski
    Abstract: We explore how speeches from individual members of the Monetary Policy Committee impact on inflation expectations, as proxied by the implied forward rate. Computational linguistics tools are used to quantify the sentiment (tonality) of individual speeches of members. External speakers have calming e ects on future expected inflation, whereas the e ects are somewhat mixed for the Bank’s Governor and the remaining internal members of the Committee. Members who deliver more speeches make the final selection in the model of the best fit. However, experience at the aggregate level does not unanimously imply more credibility. Speeches previously delivered by a selected few calm inflation expectations. The response to tonality di ers when considering pre-crisis, crisis and post-crisis regimes. The findings point out that markets’ are more responsive to the signals emitted by individual speeches in the post-crisis era.
    Keywords: Textual Analysis; Monetary Policy; Central Bank Communication; Committee Members
    JEL: D12 D84 E52 G53
    Date: 2022–06
  2. By: Carla Soares; Diana Bonfim; Christian Bittner; Florian Heider; Glenn Schepens; Farzad Saidi
    Abstract: This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit-registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards.
    JEL: E44 E52 E58 E63 F45 G20 G21
    Date: 2022
  3. By: Matthew Malloy; Francis Martinez; Mary-Frances Styczynski; Alex Thorp
    Abstract: This paper discusses how a Federal Reserve issued retail central bank digital currency (CBDC) could affect U.S. monetary policy implementation. Using a stylized balance sheet analysis, we analyze the effect a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks, and U.S. households. Then we consider how these balance sheet changes could affect monetary policy implementation for the Federal Reserve. We illustrate that the potential effects on monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal Reserve’s balance sheet. Moreover, the analysis demonstrates how the Federal Reserve may use its existing tools to manage the effects of a retail CBDC on monetary policy implementation.
    Keywords: Bank behavior; Central banking; Households; Monetary policy implementation; Retail CBDC
    Date: 2022–05–31
  4. By: Javier Bianchi; Louphou Coulibaly
    Abstract: This paper studies the transmission channels of monetary and macroprudential policies in an open economy framework and evaluates the normative implications for international spillovers and global welfare. An analytical decomposition uncovers the prominent role of expenditure switching for monetary policy, while macroprudential policy operates primarily through intertemporal substitution. We show that the risk of a liquidity trap generates a monetary policy tradeoff between stabilizing current output and containing capital inflows to lower the likelihood of a future recession, but leaning against the wind is not necessarily optimal. Finally, contrary to emerging policy concerns, capital controls can enhance global stability.
    JEL: E21 E23 E43 E44 E52 E62 F32
    Date: 2022–05
  5. By: Bernardo Candia; Olivier Coibion; Yuriy Gorodnichenko
    Abstract: Using surveys of firms around the world, we review existing evidence on how firms form their macroeconomic expectations. Several facts stand out. First, the mean inflation forecasts of firms often deviate significantly from those of professional forecasters and households. Second, disagreement about inflation among firms is large. Third, firms often change their short-run and long-run inflation expectations jointly and by similar amounts. Fourth, firms in economies with a history of low and stable inflation are inattentive to inflation and monetary policy, but this is less true in countries with more volatile environments. Fifth, firms form expectations about inflation and the real economy jointly, but the way in which they do can differ widely across countries. Finally, we show that conditioning on firms’ inflation expectations generates a stable Phillips curve relationship. We also review evidence showing that exogenous variation in the macroeconomic expectations of firms affects their decisions.
    JEL: E03 E30 E40 E5
    Date: 2022–05
  6. By: Francesco Bianchi; Sydney C. Ludvigson; Sai Ma
    Abstract: We integrate a high-frequency monetary event study into a mixed-frequency macro-finance model and structural estimation. The model and estimation allow for jumps at Fed announcements in investor beliefs, providing granular detail on why markets react to central bank communications. We find that the reasons involve a mix of revisions in investor beliefs about the economic state and/or future regime change in the conduct of monetary policy, and subjective reassessments of financial market risk. However, the structural estimation also finds that much of the causal impact of monetary policy on markets occurs outside of tight windows around policy announcements.
    JEL: E52 E58 E7 G12
    Date: 2022–05
  7. By: Daniel A. Dias; Joao B. Duarte
    Abstract: We show that monetary policy affects homeownership decisions and argue that this effect is an important and overlooked channel of monetary policy transmission. We first document that monetary policy shocks are a substantial driver of fluctuations in the U.S. homeownership rate and that monetary policy affects households' housing tenure choices. We then develop and calibrate a two-agent New Keynesian model that can replicate the estimated transmission of monetary policy shocks to homeownership rates and housing rents. We find that the calibrated model provides an explanation to the "price puzzle" and delivers two important results with policy implications. First, the homeownership decision channel amplifies the redistributive effects of monetary policy, with contractionary shocks benefiting more outright homeowners and disadvantaging more renters and homeowners with a mortgage. Second, a monetary authority that reacts to a price index that includes housing rents generates excess house price, rents, and output volatility and larger real effects.
    Keywords: Monetary policy; Homeownership; Housing rents and housing prices; Inflation dynamics; Housing tenure choice; “Price puzzle
    JEL: E31 E43 R21
    Date: 2022–05–19
  8. By: Edward Nelson
    Abstract: The pickup in the U.S. inflation rate to its highest rates in forty years has led to renewed attention being given to the Great Inflation of the 1970s. This paper asks with regard to the Great Inflation: “How did it happen?” The answer offered is the fact that, in both the United Kingdom and the United States, monetary policy and other policy instruments were guided by a faulty doctrine—a nonmonetary view of inflation that perceived the concerted restraint of aggregate demand as both ineffective and unnecessary for inflation control. In the paper’s analysis, the difference in the economic policy doctrine in the 1970s from that prevailing in more recent decades is represented algebraically, with this representation backed up by documentation of policymakers’ views. A key conclusion implied by the analysis is that the fact that a nonmonetary perspective on inflation is no longer prevalent in policy circles provides grounds for believing that monetary policy in the modern era is well positioned to prevent the recurrence of *entrenched* high inflation rates of the kind seen in the 1970s.
    Keywords: Great Inflation; Phillips curve; Monetary policy doctrine; Monetary policy strategy
    JEL: E58 E52
    Date: 2022–06–03
  9. By: Jennifer Castle; Takamitsu Kurita
    Abstract: The rapid expansion of the global cryptocurrency market raises the question of whether there are stable relationships between the prices of representative cryptocurrencies and economic indicators capturing expectations of future monetary policy. In this paper multivariate time-series analysis reveals a single but significant cointegrating relationship between cryptocurrencies and the term spread. This evidence reveals direct policy implications for the implementation of monetary policy allowing for the growing influence of digital assets. While the cointegrating linkage plays a critical role in modelling cryptocurrencies in sample, it contributes little to forecasting them out of sample, thus indicating potential efficiency in the digital currency market.
    Date: 2022–06–08
  10. By: Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
    Abstract: Global inflation has risen sharply from its lows in mid-2020, on rebounding global demand, supply bottlenecks, and soaring food and energy prices, especially since the Russian Federation’s invasion of Ukraine. Markets expect inflation to peak in mid-2022 and then decline, but to remain elevated even after these shocks subside and monetary policies are tightened further. Global growth has been moving in the opposite direction: it has declined sharply since the beginning of the year and, for the remainder of this decade, is expected to remain below the average of the 2010s. In light of these developments, the risk of stagflation—a combination of high inflation and sluggish growth—has risen. The recovery from the stagflation of the 1970s required steep increases in interest rates by major advanced-economy central banks to quell inflation, which triggered a global recession and a string of financial crises in emerging market and developing economies. If current stagflationary pressures intensify, they would likely face severe challenges again because of their less well-anchored inflation expectations, elevated financial vulnerabilities, and weakening growth fundamentals.
    JEL: E31 E32 E52 Q43
    Date: 2022–06
  11. 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.
  12. 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.
  13. By: Parnell Chu; Grahame Johnson; Scott Kinnear; Karen McGuinness; Matthew McNeely
    Abstract: Because of the COVID-19 pandemic, public interest in the Bank’s balance sheet and, more specifically, the size of settlement balances, has grown. This paper deconstructs the concept of settlement balances and provides some context on their history, current state and possible future evolution.
    Keywords: Central bank research; Coronavirus disease (COVID-19); Financial markets; Monetary policy implementation
    JEL: E E59 E6 G G01
    Date: 2022–06
  14. By: Edmund S. Crawley; Etienne Gagnon; James Hebden; James Trevino
    Abstract: This note explores the substitutability between policy rate hikes and reductions in the size of the Federal Reserve's balance sheet for the removal of policy accommodation. We do so using a version of the FRB/US model augmented to incorporate the effects of changes in the Federal Reserve's asset holdings on term premiums.
    Date: 2022–06–03
  15. By: Mujahid, Hira; Uddin, Imam; Tabash, Mosab; Ayubi, Sharique; Asad, Muhammad
    Abstract: The inflation instability creates destruction on the economy not only concerning change in prices but also over rising in the level of prices instability. The purpose of this paper is to investigate the relationship between inflation volatility, openness, and quality of institutions for the panel of 182 economies, OECD, and Non-OECD economies for the period of 1998 to 2018. The paper found that institutional quality has a significant impact on inflation volatility. It also suggests political stability and the absence of violence, regulatory quality, and rule of law dampen the inflation volatility of OECD. However, government effectiveness increases the inflation volatility in non- OECD economies. Trade openness reduces the inflation volatility of OECD conversely increases inflation volatility of non-OECD economies. The volatility of inflation of OECD and non-OECD can be improved by a low exchange rate. The policy implications are central banks do use measures internally and emphasize the stability of headline inflation rates over the medium term. It has to be taken into consideration that institutional quality influences average inflation rates.
    Keywords: Inflation Volatility, Institutions Quality, Voice Accountability, Control of Corruption.
    JEL: E60 H30 H80 P30
    Date: 2021
  16. By: Abdul Jalil (Pakistan Institute of Development Economics)
    Abstract: Inflation has become a topic of serious discussion since the 1970s due to its well-documented cost (see Box 1), and the policy-makers always try to concentrate on inflation-averse policies. Therefore, the understanding of the drivers of inflation is essential for designing policies to control inflation.
    Keywords: Drivers, Inflation, Roots to Regressions
    Date: 2021
  17. 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
  18. By: Tokarski, Paweł; Wiedman, Alexander
    Abstract: One of the most serious economic and social consequences of the pandemic is the higher public debt of the Eurozone countries. The massive interventions of the Euro­system have lowered borrowing costs to record lows. For some time to come, the sustainability of the public finances of the most indebted Eurozone countries will depend on expansionary monetary policy. However, this approach raises questions. It is uncertain how long monetary policy can support the debt market of the EU-19, whether there are effective alternatives, and what impacts the high debt levels and the interventions of the European Central Bank (ECB) will have on the foundations of the Eurozone.
    Date: 2021
  19. By: Michael Weber; Francesco D’Acunto; Yuriy Gorodnichenko; Olivier Coibion
    Abstract: Households’ and firms’ subjective inflation expectations play a central role in macroeconomic and intertemporal microeconomic models. We discuss how subjective inflation expectations are measured, the patterns they display, their determinants, and how they shape households’ and firms’ economic choices in the data and help us make sense of the observed heterogeneous reactions to business-cycle shocks and policy interventions. We conclude by highlighting the relevant open questions and why tackling them is important for academic research and policy making.
    JEL: D1 D2 D8 D9 E2 E3 E4 E5 E7 J1
    Date: 2022–05
  20. By: Connor Oxenhorn
    Abstract: Stablecoins, digital assets pegged to a specific currency or commodity value, are heavily involved in transactions of major cryptocurrencies. The effects of deviations from their desired fixed values (depeggings) on the cryptocurrencies for which they are frequently used in transactions are therefore of interest to study. We propose a model for this phenomenon using a multivariate mutually-exciting Hawkes process, and present a numerical example applying this model to Tether (USDT) and Bitcoin (BTC).
    Date: 2022–05
  21. By: Chenzi Xu; He Yang
    Abstract: We show that decentralized privately created money with unstable values can hinder the traded, more transaction-friction sensitive, sector of the economy. We do so in the context of the NationalBanking Act of 1864 in the United States that created a new federally-regulated, fully-backed currency as an alternative to the pre-existing money supply, which consisted of unsecured notes printed by thousands of local private banks. Using a discontinuous change across towns in the costs of accessing this new type of stable, federally-backed money as a natural experiment, we show that places gaining access to the new currency experienced a shift in the composition of agricultural production from non-traded to traded goods and increased employment in trade-related professions. In addition, counties gaining access to the new stable money increased their manufacturing output by sourcing more inputs, and they innovated more, all consistent with the stable currency improving their market access and allowing them to expand through trade.
    JEL: E42 E44 E51 F14 G21 N11 N21
    Date: 2022–05
  22. By: Reichold, Karsten (Department of Statistics, TU Dortmund University and Department of Economics, University of Klagenfurt); Wagner, Martin (Department of Economics, University of Klagenfurt, Bank of Slovenia, Ljubljana and Institute for Advanced Studies, Vienna); Damjanović, Milan (Bank of Slovenia, Ljubljana); Drenkovska, Marija (Bank of Slovenia, Ljubljana)
    Abstract: This paper presents evidence for sources and channels of nonlinearities and instabilities of the new Keynesian Phillips curve (NKPC) for the euro area and all but four member states over the last two decades prior to the COVID-19 crisis. The approach rests upon misspecification testing using auxiliary regressions based on the standard open-economy hybrid NKPC. Using a large number of specifications, this approach allows to systematically, i. e., based on a literature review, disentangle the evidence for nonlinearities and instabilities of the NKPC according to sources and channels. For the euro area and most considered member states, there is substantial evidence for nonlinearities and instabilities. The relatively most important channels of nonlinearities and instabilities are similar across countries, whereas the relatively most important sources differ across countries. The results strongly indicate the need for considering nonlinear NKPC relationships in empirical analyses and also point towards potentially useful nonlinear specifications.
    Keywords: Euro area, instability, new Keynesian Phillips curve, nonlinearity, specification analysis
    JEL: E31 E52 E58 F62 J11
    Date: 2022–06
  23. By: Akingbade U. Aimola; Nicholas M. Odhiambo
    Abstract: Inflationary tendencies of public debt have been the cause of an unsettling debate among policymakers in Nigeria. Using the autoregressive distributed lag (ARDL) framework, this study attempts to investigate the impact of total public debt on inflation in Nigeria for the period 1983–2018. The cointegrating regression results reveal evidence of a stable long-run relationship among inflation, total public debt, money supply, interest rate, economic growth, trade openness, and private investment in the presence of structural breaks. Empirical results show that the impact of public debt on inflation is statistically insignificant, irrespective of whether the regression was in the short or the long run. Hence, the study concludes that inflation in Nigeria could be driven by other factors other than public debt.
  24. By: Patrick Alexander; Sami Alpanda; Serdar Kabaca
    Abstract: We provide empirical evidence of the causal effects of changes in financial intermediaries’ net worth on the aggregate economy. Our strategy identifies financial shocks as high-frequency changes in the market value of intermediaries’ net worth in a narrow window around their earnings announcements, based on US tick-by-tick data. Using these shocks, we estimate that news of a 1% decline in intermediaries’ net worth leads to a 0.2% to 0.4% decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity and when the aggregate net worth of intermediaries is low.
    Keywords: Business fluctuations and cycles; Exchange rate regimes; Exchange rates; Foreign reserves management; International financial markets; International topics
    Date: 2022–06
  25. By: Akingbade U. Aimola; Nicholas M. Odhiambo
    Abstract: This paper investigates the impact of public debt on inflation in Ghana using annual data during the period 1983-2018. The study uses the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and an error correction model to examine this linkage. The cointegrating regression results reveal evidence of a stable long-run relationship between inflation and the explanatory variables in the presence of a structural break. The findings also show a positive and significant impact of public debt on inflation. These results were found to hold, irrespective of whether the regression was conducted in the short run or the long run. The study confirms the presence of the inflationary effects of public debt in Ghana. The government should, therefore, be prudent when considering increases in public debt to minimise volatility in inflation and its associated risks to the economy.
  26. By: Kirstin Hubrich; Daniel F. Waggoner
    Abstract: We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models. Recently developed theoretical models emphasize the role of bank balance sheets for the build-up of financial instabilities and the amplification of financial shocks. We build a market-based measure of leverage of financial institutions employing institution-level data and find empirical evidence that real effects of financial shocks are amplified by the leverage of financial institutions in the financial-constraint regime. We also find evidence of heterogeneity in how financial institutions, including depository financial institutions, global systemically important banks and selected nonbank financial institutions, affect the transmission of shocks to the macroeconomy. Our results confirm the leverage ratio as a useful indicator from a policy perspective.
    Keywords: Regime switching models; Time-varying transition probabilities; Financial shocks; Leverage; Bank and nonbank financial institutions; Heterogeneity
    JEL: C11 C32 C53 C55 E44 G21
    Date: 2022–06–01
  27. By: Andras Lengyel (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: How does the additional debt issued by the government affect the term structure of interest rates? In this paper we identify Treasury supply shocks using intraday high-frequency data, by exploiting the institutional setup of the UK government bond primary market. We find that supply shocks have positive effects on nominal and real interest rates. Most of the reaction is due to real term and inflation risk premia rather than the expectation component of yields. We argue both theoretically and empirically that supply shocks transmit via the repricing of duration and inflation risks in the economy. We also document that these effects are stronger under adverse economic and financial conditions.
    Keywords: Term structure, government debt, bond risk premia, high-frequency identification
    JEL: E43 E44 E60
    Date: 2022
  28. By: Beetsma, Roel; Cimadomo, Jacopo; van Spronsen, Josha
    Abstract: This paper proposes a central fiscal capacity for the euro area that generates transfers in response to eurozone, country, and region-specific shocks. The main novelty of this fiscal capacity is that it allows a joint response to these three types of shocks within a single scheme. Based on NUTS3 regional data over the last two decades and regional fiscal multiplier estimates, our analysis shows that - with a limited risk of moral hazard - substantial stabilisation could have been achieved in response to the eurozone and regional shocks, while country-specific shocks were on average less severe and therefore needed less stabilisation. JEL Classification: C38, E32, E62, E63
    Keywords: Bayesian inference, Central fiscal capacity, macroeconomic stabilisation, multilevel factor model
    Date: 2022–05
  29. By: Patrick C. Higgins
    Abstract: The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the country that took relatively large hits to their unemployment rate and employment-population ratio during the pandemic have had lower inflation, on average, than areas that took relatively small hits. And, just as prior to the pandemic, the inverse relationship between inflation and unemployment continues to be statistically stronger for the prices of services than of goods. The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the country that took relatively large hits to their unemployment rate and employment-population ratio during the pandemic have had lower inflation, on average, than areas that took relatively small hits. And, just as prior to the pandemic, the inverse relationship between inflation and unemployment continues to be statistically stronger for the prices of services than of goods.
    Keywords: inflation; unemployment; labor markets; Phillips curve; regional data; panel data
    JEL: C23 E31 E32
    Date: 2021–09–09
  30. By: Vivien Deak (Magyar Nemzeti Bank (Central Bank of Hungary)); Istvan Nemecsko (Magyar Nemzeti Bank (Central Bank of Hungary)); Tamas Vegso (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In our study, we analyse the payment habits of the Hungarian population based on data from a representative questionnaire survey conducted in autumn 2020 using basic statistical methods, regression analysis and cluster analysis. Our results show that at least 90 per cent of households in Hungary have at least one bank account or payment card. Overall coverage is high and falls significantly short of 100 per cent only for the over-60s , so this is not a major barrier to further adoption of electronic payments. Although in decreasing proportions, cash incomes are still present in the Hungarian economy today, especially for those performing manual labour and entrepreneurial activities. In European comparison, Hungarians withdraw cash fewer times, but in significantly larger amounts, and the possibility of free cash withdrawals twice a month is likely to have had a strong influence on the consolidation of this practice. Around 80 per cent of the population use electronic payments, a proportion that is steadily increasing, but at the same time almost all citizens still use cash, too. An important change compared to previous data is that the share of people using electronic payments to pay their utility bills now exceeds the share of people using cash, and the same is true for online purchases. The use of, and choice between, different payment methods is most influenced by different socio-demographic factors (age, education, employment status, household income per capita), transaction situation and the perceived cost of each payment method to consumers. The coronavirus pandemic and the restrictions it imposed increased the use of electronic payment methods even further, but cash still remained the most commonly used means of payment during this period. In the future, the mandatory acceptance of electronic payments for online cash register users from 1 January 2021 and the emergence of user-friendly, low-cost applications based on instant payments are expected to further support the growth of electronic payments. However, for certain demographic groups, cash use may remain dominant even in the long term.
    Keywords: retail payments, payment habits, household behaviour, electronic payment methods, financial integration
    JEL: C38 D12 D14 E42
    Date: 2022

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