nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒08‒22
34 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Conceptual note on inflation targeting types and their performance in anchoring inflation expectations By Lena Cleanthous
  2. Monetary policy & anchored expectations: an endogenous gain learning model By Gáti, Laura
  3. Two Illustrations of the Quantity Theory of Money Reloaded By Han Gao; Mariano Kulish; Juan Pablo Nicolini
  4. Monetary policy normalization, central bank profits, and seigniorage By Zbigniew Polański; Mikołaj Szadkowski
  5. Targeted monetary policy, dual rates and bank risk taking By Barbiero, Francesca; Burlon, Lorenzo; Dimou, Maria; Toczynski, Jan
  6. Consumer inflation expectations and regional price changes By Tomasz Łyziak; Michael Pedersen; Ewa Stanisławska
  7. The impact on the Polish economy of the Structural Open Market Operations programme conducted by NBP By Katarzyna Hertel; Marcin Humanicki; Marcin Kitala; Tomasz Kleszcz; Kamila Kuziemska-Pawlak; Jakub Mućk; Bartosz Rybaczyk; Maciej Stefański
  8. Circular economy and central bank digital currency By Ozili, Peterson K
  9. The consequences of the bank levy in Poland By Mariusz Kapuściński
  10. The Labor Share is a Catalyst for Monetary Policy - Two Million Firms' Production Dynamics By Lea Steininger; Jan Philipp Fritsche
  11. The Autonomy Of State Bank: A Fresh Look At Central Bank Independence By Aqsa Gul
  12. An Analysis of the Interest Rate Risk of the Federal Reserve’s Balance Sheet, Part 1: Background and Historical Perspective By Alyssa G. Anderson; Dave Na; Bernd Schlusche; Zeynep Senyuz
  13. Fit-for-Purpose Payment System Interoperability: A Framework By Jorge Herrada; Angela N Lawson
  14. E pluribus plures: shock dependency of the USD pass-through to real and financial variables By Minesso, Massimo Ferrari; Gräb, Johannes
  15. The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications By Weber, Michael; D’Acunto, Francesco; Gorodnichenko, Yuriy; Coibion, Olivier
  16. New facts on consumer price rigidity in the euro area By Erwan Gautier; Cristina Conflitti; Riemer P. Faber; Brian Fabo; Ludmila Fadejeva; Valentin Jouvanceau; Jan-Oliver Menz; Teresa Messner; Pavlos Petroulas; Pau Roldan-Blanco; Fabio Rumler; Sergio Santoro; Elisabeth Wieland; Hélène Zimmer
  17. The impact of weight shifts on inflation: Evidence for the euro area HICP By Knetsch, Thomas A.; Schwind, Patrick; Weinand, Sebastian
  18. A global monetary policy factor in sovereign bond yields By Dimitris Malliaropulos; Petros Migiakis
  19. Mobile Money Adoption in Kenya: The Role of Mobile Money Agents By Johnen, Constantin; Musshoff, Oliver; Parlasca, Martin C.
  20. Modern Monetary Theory: the post-Crisis economy misunderstood? By Liu, Chunping; Minford, Patrick; Ou, Zhirong
  21. Monetary Policy, Inflation Outlook, and Recession Probabilities By Andrea Ajello; Luca Benzoni; Makena Schwinn; Yannick Timmer; Francisco Vazquez-Grande
  22. Inflation and Distributive Conflict: a theoretical perspective By Guilherme Spinato Morlin
  23. The evolution of macroprudential policy use in Chile, Latin America and the OECD By Carlos Madeira
  24. Climate change versus price stability: How "green" central bankers and members of the European parliament became pragmatic (yet precarious) bedfellows By Massoc, Elsa C.
  25. The effects of Monetary Policy on Capital Flows A Meta-Analysis By Mauricio Villamizar-Villegas; Lucía Arango-Lozano; Geraldine Castelblanco; Nicolás Fajardo-Baquero; Maria A. Ruiz-Sanchez
  26. Unconventional credit policies during crises: A structural analysis of the Chilean experience during the COVID-19 pandemic By Benjamín García; Mario González; Sebastián Guarda; Manuel Paillacar
  27. An Analysis of the Interest Rate Risk of the Federal Reserve’s Balance Sheet, Part 2: Projections under Alternative Interest Rate Paths By Alyssa G. Anderson; Philippa Marks; Dave Na; Bernd Schlusche; Zeynep Senyuz
  28. Four facts about relationship lending: The case of Chile 2012-2019 By Miguel Acosta-Henao; Sangeeta Pratap; Manuel Taboada
  29. Macroprudential Regulation and Sector-Specific Default Risk By Sami Ben Naceur; Bertrand Candelon; Mohamed Belkhir; Jean-Charles Wijnandts
  30. Survey Responses Indicating Improved Perceptions of Discount Window Usage Align with Observed Borrowing Behavior By Abigail M. Roberts
  31. Systemic Sudden Stops in Emerging Economies: A Recent Perspective By Tunio, Mohsin Waheed
  32. Trading Volume and Liquidity Provision in Cryptocurrency Markets By Daniele Bianchi; Mykola Babiak; Alexander Dickerson
  33. Superior Predictability of American Factors of the Won/Dollar Real Exchange Rate By Sarthak Behera; Hyeongwoo Kim; Soohyon Kim
  34. Long-term unemployment, hysteresis and missing deflation: reconsidering the New-Keynesian approach by means of an 'old' Phillips curve By Davide Romaniello

  1. By: Lena Cleanthous (Central Bank of Cyprus)
    Abstract: Since the early 1990s, inflation targeting has been widely adopted across the globe with the primary objective of maintaining price stability. Central banks formulate their inflation objective in a variety of ways: most of them use point targets, some use range targets, others a point with bands around it. A priori, the effect of adding tolerance bands or a range on how well inflation expectations are anchored is not clear. On the one hand, point targets are missed more often, which may undermine the public’s confidence in the inflation target, especially if realised inflation deviates from the point target consistently. On the other hand, missing a target range or a band could be even more detrimental to the credibility of the target, whilst the increased flexibility from these types might lead to more uncertainty about the exact future path of inflation, leading to less firmly anchored inflation expectations. In the wake of persistently low inflation for over a decade, the type of inflation target has received renewed interest in the academia. A proposed solution to the persistence of inflation at low levels has been to replace point targets for target ranges. Recent evidence in the literature, however, has not been strong enough to overrule the central conclusion from the past international debate between point target and range target, that monetary policy flexibility could be achieved even without an interval.
    Keywords: European Central Bank, price stability, monetary policy strategy, inflation targets, point target, range target
    JEL: E31 E52 E58
    Date: 2020–11
  2. By: Gáti, Laura
    Abstract: This paper analyzes monetary policy in a model with a potential unanchoring of inflation expectations. The degree of unanchoring is given by how sensitively the public’s long-run inflation expectations respond to inflation surprises. I find that optimal policy moves the interest rate aggressively when expectations unanchor, allowing the central bank to accommodate inflation fluctuations when expectations are well-anchored. Furthermore, I estimate the model-implied relationship that determines the extent of unanchoring. The data suggest that the expectations process is nonlinear and asymmetric: expectations respond more sensitively to large or downside surprises than to smaller or upside ones. JEL Classification: E52, E71, D84
    Keywords: anchored expectations, behavioral macro, optimal monetary policy
    Date: 2022–07
  3. By: Han Gao (University of Minnesota); Mariano Kulish (University of Sydney); Juan Pablo Nicolini (Federal Reserve Bank of Minneapolis/Universidad Di Tella)
    Abstract: In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. If persistent changes in the monetary policy regime are accounted for, the behavior of these series maintains the close relationship predicted by standard quantity theory models. With an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver quite different high-frequency dynamics. We also show that the low-frequency component of the data derived from statistical filters does reasonably well in capturing these regime changes.We conclude that the quantity theory relationships are alive and well, and thus they are useful for policy design aimed at controlling inflation.
    Keywords: Money Demand, Monetary Aggregates, Monetary Policy
    JEL: E41 E51 E52
    Date: 2022–07
  4. By: Zbigniew Polański (SGH Warsaw School of Economics and National Bank of Poland); Mikołaj Szadkowski (SGH Warsaw School of Economics and National Bank of Poland)
    Abstract: This paper advances a simple framework explaining how monetary policy normalization (“exit policies”) may impact central bank profits and seigniorage formation with further implications for central bank transfers to the government. The cases of seven central banks of major and smaller economies serve as an illustration. The notion of the break-even point is applied to study the financial situation of these institutions for the period of 2014-2020. During the normalization process, interest rate increases may adversely affect profit changes, and through transfers may have an impact on the fiscal space available to the governments, creating political economy concerns. Possible remedies are discussed together with accompanying policy dilemmas.
    Keywords: central bank profit, seigniorage, break-even point, monetary policy normalization, exit policies
    JEL: E52 E58 E59
    Date: 2022
  5. By: Barbiero, Francesca; Burlon, Lorenzo; Dimou, Maria; Toczynski, Jan
    Abstract: We assess whether central bank credit operations influence the size and composition of bank credit in a negative interest rate environment. We exploit confidential information from the newly established European credit registry to capture bank lending conditions and bank risk taking. For identification, we use high-frequency reactions of bank bonds around the announcement of the April 2020 recalibration of the ECB’s Targeted Longer-Term Refinancing Operations (TLTROs). We find that the credit easing measures had a strong positive effect on bank credit, even when controlling for possible confounding factors. The increase in lending was not accompanied by excessive risk-taking, especially for banks with low intermediation margin, that is, those that were poised to benefit the most from TLTROs’ borrowing rates below the interest rates on central bank reserves. JEL Classification: E51, E52, G01, G21
    Keywords: bank lending, dual rates, risk taking, unconventional monetary policy
    Date: 2022–07
  6. By: Tomasz Łyziak (National Bank of Poland); Michael Pedersen (Universidad Adolfo Ibáñez Business School); Ewa Stanisławska (National Bank of Poland)
    Abstract: Employing micro and aggregate observations on inflation expectations, we analyze the extent to which US consumers are affected by regional price swings when reporting their predictions of inflation. We begin with the aggregate data analysis based on a generalized sticky information model. The results indicate that regional differences in inflation rates do exert a statistically significant impact on disagreement in inflation expectations among consumers. However, the quantitative importance of this effect is small. The second part of the analysis employs micro survey observations to assess the importance of regional prices in the formation of inflation expectations. This is done, firstly, by considering a framework in which information is sticky and, secondly, in a context where consumer’s experience of inflation matters when forming expectations. We find that regional rather than national inflation rates affect consumers’ views on inflation in short- and medium-term horizon.
    Keywords: Inflation, consumer expectations, experience, sticky information, local prices.
    JEL: C23 E31 E58
    Date: 2022
  7. By: Katarzyna Hertel (National Bank of Poland); Marcin Humanicki (National Bank of Poland); Marcin Kitala (National Bank of Poland); Tomasz Kleszcz (National Bank of Poland); Kamila Kuziemska-Pawlak (National Bank of Poland); Jakub Mućk (National Bank of Poland); Bartosz Rybaczyk (National Bank of Poland); Maciej Stefański (National Bank of Poland)
    Abstract: The paper presents estimates of the macroeconomic effects of the Structural Open Market Operations (SOMO) programme implemented by NBP in 2020 in response to the COVID-19 pandemic shock. In order to assess the ex-ante impact of bond purchases by the central bank on the real economy and prices in Poland, (i) the impact of unconventional monetary policy on financing conditions, identified indirectly using the shadow policy rate concept, and (ii) the impact of the SOMO on the exchange rate of the Polish zloty against the euro were estimated. The results of the NECMOD model simulations indicate that the unconventional monetary policy conducted by NBP reduced the extent of the decline in GDP growth and inflation by 0.1 and 0.2 percentage points in 2020 and 0.5 percentage points each in 2021. At the same time, the macroeconomic impact of the SOMO was similar to the effect of the interest rate cuts in the first half of 2020.
    Keywords: monetary policy, open market operations, COVID-19
    JEL: E31 E52 E5
    Date: 2022
  8. By: Ozili, Peterson K
    Abstract: The emergence of central bank digital currency (CBDC) provides an opportunity for central banks to make an important contribution to the transition to a circular economy. This paper examines the role of a central bank digital currency in the circular economy. Central banks can contribute to the transition to a circular economy in two ways: first, by making central bank digital currency accessible to circular businesses and other players in the circular economy sector; and second, by looking into how the design features of CBDC can support circular economy goals. On the role of CBDC in the circular economy, I argue that a central bank digital currency offers a better payment option for circular economy financial transactions; central bank digital currency can lead to greater financial inclusion for ‘unbanked’ informal workers in the circular economy; CBDC can create a gateway that allows a central bank to offer financial assistance to distressed circular businesses; using a central bank digital currency can reduce illicit activities in the circular economy; a central bank digital currency can be used to provide stimulus funding to support circular businesses during crises; and, a central bank digital currency can offer low transaction cost for circular economy financial transactions. The paper also shows the link between CBDC and the circular economy. It also offers a critical perspective on the link between CBDC and the circular economy.
    Keywords: circular economy, central bank digital currency, circular finance, linear economy, resources, sustainability, central bank, CBDC design, blockchain, sustainable development, payment system, innovation.
    JEL: E42 Q2 Q54 Q56
    Date: 2022
  9. By: Mariusz Kapuściński (National Bank of Poland)
    Abstract: In this study I analyse the effects of a bank levy, as introduced in Poland, on areas which appear to be relevant from the perspective of a central bank. I apply the difference-in-differences method, using bank level panel data. I find that the introduction of the bank levy has affected the use of some monetary policy instruments, money market rates and volumes, and deposit and loan rates. However, I find little evidence of its impact on loan volumes, bank profitability, capital and risk-taking. This means that the bank levy has had important implications for monetary policy implementation, interest rate benchmark reform and monetary conditions, but (as yet) less so for financial stability. As an extension of the study, I document its effects on assets and Treasury bond holdings (including their changes at the end of the month), and estimate the impact of bank balance sheet adjustments on government revenues.
    Keywords: bank levy, difference-in-differences, panel data, monetary policy instruments, money market, financial stability
    JEL: C23 E43 E51 E52 G18 H26 H39
    Date: 2022
  10. By: Lea Steininger (Department of Economics, Vienna University of Economics and Business); Jan Philipp Fritsche (Humboldt University of Berlin, German Institute for Economic Research)
    Abstract: We study the role of firm heterogeneity and cost structure in determining the transmission of monetary policy. Using local projections and high dimensional fixed effects, we show that a one standard deviation contractionary monetary policy shock decreases firms' labor share by 0.4 percent, on average. However, reactions are heterogeneous along two dimensions: The labor share is most informative to discriminate firms by their response in payroll expenses, firms' leverage is most informative to discriminate by their response in value added. We interpret these findings by theorizing differential effects of factor input costs. Our results inform the policy debate on transmission and redistribution effects of monetary policy, and suggest that the effectiveness of monetary policy may depend on the labor intensity of production.
    Keywords: Monetary policy, firm heterogeneity, labor share, production dynamics, factor input costs
    JEL: D22 E52 D31 E23 E32
    Date: 2022–07
  11. By: Aqsa Gul (MPhil Scholar, PIDE)
    Abstract: In a significant move, the federal cabinet approved amendments in the State Bank of Pakistan (SBP) Act in the name of central bank autonomy, price stability and accountability. The benefit of central bank independence is well documented in the literature. However, there is a dire need to evaluate several important questions
    Keywords: Autonomy, State Bank, Central Bank Independence,
    Date: 2021
  12. By: Alyssa G. Anderson; Dave Na; Bernd Schlusche; Zeynep Senyuz
    Abstract: As part of its implementation of monetary policy, the Federal Reserve (Fed) holds Treasury securities and agency mortgage-backed securities (MBS) in the System Open Market Account (SOMA). The market value of these securities and the Fed's income fluctuate with changes in interest rates. As such, the ongoing increases in policy rates to address inflationary pressures are expected to put downward pressure on the Fed's net income.
    Date: 2022–07–15
  13. By: Jorge Herrada; Angela N Lawson
    Abstract: Payment systems, and interoperation within and between them, are complicated, making analysis and dialogue among analysts, technologists, and members of the public challenging. Given the emergence of new payment mechanisms, like CBDC and private digital currency, these discussions are increasingly important to identify opportunities and challenges. This paper proposes a four-step framework and provides several tools policy analysts, technologists, and interested members of the public can use to interpret and discuss payment system interoperation. First, we provide an overview of payment system interoperation and why it is important. Next, we describe our four-step framework. Then, we apply the framework by describing the potential results of a hypothetical fit-for-purpose interoperation discussion where both a hypothetical central bank digital currency (CBDC) and stablecoins, a type of private digital currency, could co-exist in a payment system.
    Date: 2022–07–14
  14. By: Minesso, Massimo Ferrari; Gräb, Johannes
    Abstract: This paper quantifies the pass-through of a US dollar appreciation on trade variables and domestic financial conditions in a panel of 34 countries. Pass-through coefficients are highly shock-dependent: if the appreciation is driven by a US expansionary shock, the positive effects of stronger global demand - the “real” channel dominate the negative effects of a stronger dollar - the “exchange rate” channel. As a result, a positive US demand (supply)-drive appreciation expands global trade and stock valuations up to 2.2 (2.5) and 8% (15%) respectively, while if the appreciation is driven by a monetary policy shock the sign is opposite, leading to a contraction in the order of 2.5% (3%) depending on the country. The coefficients also exhibit a large degree of cross-country heterogeneity, we find that financial and trade exposure to the US, trade openness and USD invoicing shares explain up to 60% of the USD pass-through after demand and supply shocks. Cross-country differences, instead, are not explained by dollar invoicing if monetary policy or risk shocks determine USD movements. We explain this finding with the endogenous policy reaction of monetary authorities in emerging markets that stabilizes the exchange rate against the dollar and weakens the invoicing channel of dollar shocks. JEL Classification: F31, F41, F44, E44, E32
    Keywords: Exchange rate, pass-through, USD, VAR
    Date: 2022–07
  15. By: Weber, Michael (University of Chicago); D’Acunto, Francesco (Georgetown University); Gorodnichenko, Yuriy (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin)
    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.
    Keywords: macroeconomics, intertemporal choice, consumption, savings, surveys, monetary policy, fiscal policy, experiments, financial decision-making, cognition, communication
    JEL: D1 D2 D8 D9 E2 E3 E4 E5 E7 J1
    Date: 2022–06
  16. By: Erwan Gautier (Banque de France); Cristina Conflitti (Banca d'Italia); Riemer P. Faber (National Bank of Belgium); Brian Fabo (National Bank of Slovakia); Ludmila Fadejeva (Latvijas Banka); Valentin Jouvanceau (Lietuvos Bankas); Jan-Oliver Menz (Deutsche Bundesbank); Teresa Messner (Oesterreichische Nationalbank); Pavlos Petroulas (Bank of Greece); Pau Roldan-Blanco (Banco de España); Fabio Rumler (Oesterreichische Nationalbank); Sergio Santoro (European Central Bank); Elisabeth Wieland (Deutsche Bundesbank); Hélène Zimmer (National Bank of Belgium)
    Abstract: Using CPI micro data for 11 euro area countries covering about 60% of the euro area consumption basket over the period 2010-2019, we document new findings on consumer price rigidity in the euro area: (i) each month on average 12.3% of prices change, which compares with 19.3% in the United States; when we exclude price changes due to sales, however, the proportion of prices adjusted each month is 8.5% in the euro area versus 10% in the United States; (ii) differences in price rigidity are rather limited across euro area countries but much larger across sectors; (iii) the median price increase (resp. decrease) is 9.6% (13%) when including sales and 6.7% (8.7%) when excluding sales; cross-country heterogeneity is more pronounced for the size than for the frequency of price changes; (iv) the distribution of price changes is highly dispersed: 14% of price changes in absolute values are lower than 2% whereas 10% are above 20%; (v) the overall frequency of price changes does not change much with inflation and does not react much to aggregate shocks; (vi) changes in inflation are mostly driven by movements in the overall size; when decomposing the overall size, changes in the share of price increases among all changes matter more than movements in the size of price increases or the size of price decreases. These findings are consistent with the predictions of a menu cost model in a low inflation environment where idiosyncratic shocks are a more relevant driver of price adjustment than aggregate shocks.
    Keywords: price rigidity, inflation; consumer prices; micro data
    JEL: D40 E31
    Date: 2022–08
  17. By: Knetsch, Thomas A.; Schwind, Patrick; Weinand, Sebastian
    Abstract: The shifts in household consumption caused by the coronavirus pandemic affect inflation measurement in the euro area via the updating of product weights. We propose a decomposition of the inflation rate, measured by the annual percentage change of the Harmonised Index of Consumer Prices (HICP), into the aggregate price change, keeping weights constant at the previous year's level, and a weighting component. We discuss this decomposition against the backdrop of the HICP concept, considering the evolution of measurement rules over time and marking differences to a decomposition into pure price change and quantity components. Our empirical results show that euro area inflation was distinctly influenced by weighting effects for the first time in 2021. This can equally be observed for France and Italy, while comparable weighting effects in Germany already occurred prior to 2021, albeit rarely. For the period from 2013 onwards, we also provide results for the quantity effect in HICP inflation of these countries. The empirical evidence shows a close relationship between weighting and quantity effects. As weighting effects can be calculated directly from publicly available HICP data over its entire history and are comparable across individual euro area countries, we argue that this decomposition is relevant in terms of providing timely information, especially for analysts and policy-makers.
    Keywords: Inflation measurement,HICP,Updating of weights
    JEL: E31 C43
    Date: 2022
  18. By: Dimitris Malliaropulos (Bank of Greece); Petros Migiakis
    Abstract: We document the existence of a global monetary policy factor in sovereign bond yields, related to the size of the aggregate balance sheet of nine major central banks of developed economies that have implemented programs of large-scale asset purchases. Balance sheet policies of these central banks reduced the net supply of safe assets in the global economy, triggering a decline in global yields as investors rebalanced their portfolios towards more risky assets. We find that central banks’ large-scale asset purchases have contributed to significant and permanent declines in long-term yields globally, ranging from around 330 bps for AAA-rated sovereigns to 800 bps for non-investment grade sovereigns. The stronger decline in yields of high-risk sovereigns can be partly attributed to the decline in the foreign exchange risk premium as their currencies appreciated. Global central bank asset purchases during the Covid-19 crisis have more than counterbalanced the effects of expanding fiscal deficits on global bond yields, driving them to even lower levels. Our findings have important policy implications: normalizing monetary policy by scaling down central bank balance sheets to pre-crisis levels may lead to sharp increases in sovereign bond yields globally, widening spreads and currency depreciations of vulnerable sovereigns with severe consequences for financial stability and the global economy.
    Keywords: quantitative easing; central bank balance sheet policies; sovereign risk; interest rates; panel cointegration.
    JEL: E42 E43 G12 G15
    Date: 2022–07
  19. By: Johnen, Constantin; Musshoff, Oliver; Parlasca, Martin C.
    Keywords: International Development, Productivity Analysis, Community/Rural/Urban Development
    Date: 2022–08
  20. By: Liu, Chunping (Nottingham Trent University); Minford, Patrick (Cardiff Business School); Ou, Zhirong (Cardiff Business School)
    Abstract: We set out Modern Monetary Theory (MMT) as a full DSGE model, and test it by indirect inference on post Financial Crisis US data, alongside a standard New Keynesian, NK, model. The MMT model is rejected, while the NK model has a high probability. We then evaluate replacing the fiscal and monetary policies within the NK model by MMT policies, and find that they imply a material loss of welfare
    Keywords: Modern Monetary Theory; DSGE model; fiscal activism; Wald test; indirect inference
    Date: 2022–07
  21. By: Andrea Ajello; Luca Benzoni; Makena Schwinn; Yannick Timmer; Francisco Vazquez-Grande
    Abstract: An inverted yield curve—defined as an episode in which long-maturity Treasury yields fall below their short-maturity counterparts—is a powerful near-term predictor of recessions. While most previous studies focus on the predictive power of the spread between long- and short-maturity Treasury yields, Engstrom and Sharpe (2019) have recently shown that a measure of the nominal near-term forward spread (NTFS), given by the difference between the six-quarter-ahead forward Treasury yield and the current three-month Treasury bill rate, dominates long-term spreads as a leading indicator of economic activity.
    Date: 2022–07–12
  22. By: Guilherme Spinato Morlin
    Abstract: Conflicting claims models have stressed the race between prices and money wages, in the struggle among capitalists and workers, as the main inflationary pressure. We discuss how conflicting-claims inflation models describe conflict inflation and the related outcome for income distribution. The paper therefore contrasts alternative theoretical perspectives underlying conflicting claims models. We also discuss how these approaches provide a criticism to the New-Keynesian Phillips curve. We also explore the relations between demand-pull and cost-push inflation and endogenous money theory. A deeper understanding of distributive conflict requires an analytical exposition of the relation between prices and distribution. In general, conflicting claims models rely on Kaleckian explanation of distribution, based on the notion of mark-up pricing according to the degree of monopoly. Conflict inflation allows wage bargaining to affect income distribution and, thus, the real mark-up level. However, this theory contains unsolved theoretical shortcomings, lacking an ultimate explanation for profits and overlooking input-output relations. An alternative theory of distribution can be found in modern appraisals of the Classical surplus approach. We examine how this approach has been extended to the study of inflation, providing a consistent relation between inflation and distributive conflict
    JEL: B51 D33 D46 E31
    Date: 2022–04
  23. By: Carlos Madeira
    Abstract: This study compares the use of macroprudential policies and capital flow management in Chile versus other countries. I find that Chile made a lower net tightening of its macroprudential policies relative to 1990 than the other country groups, whether in terms of its overall index or any of its subcategories. This is explained in part because Chile had already adopted tight macroprudential policies after the Banking Law of 1986; therefore, it started the 1990s with a more conservative level of financial regulation than most countries. However, Chile still presents a restrictive Loan to Value regulation, close to the OECD average. In terms of Financial Openness and Capital Controls, Chile was very closed until the Asian crisis. Chile is more open with respect to capital inflows relative to all the country groups, although it is still more closed than the OECD and Advanced Economies for outflows.
    Date: 2022–07
  24. By: Massoc, Elsa C.
    Abstract: The European Central Bank (ECB) recently proclaimed a more active role for itself in the fight against climate change. Did the European Parliament (EP) play a part in this regard, and if so what was it? To answer this question, this paper builds on a multi-method text analysis of original datasets compiling communications between the ECB and the EP across three accountability forums between 2014 and 2021. The paper shows that there has been discursive convergence between central bankers and parliamentarians concerning the role of the ECB in combatting climate change. It argues that this convergence has resulted from a pragmatic (yet precarious) adoption of a common repertoire1 between 'green' central bankers and parliamentarians who have favored a more active role for the ECB in the fight against climate change. The adoption of a common repertoire is pragmatic, in that it results from the strategic use of specific discursive elements that are ambitious enough to address their respective opponents and trigger political change, yet vague enough to allow both sets of actors to converge on them momentarily. It is also precarious in the sense that it involves discarding fundamental political tensions, which is hardly tenable in the long term. The paper shows that both organizational and politicization dynamics have been at work in the emergence of this pragmatic yet precarious bedfellowship between 'green' central bankers and parliamentarians.
    Keywords: accountability,politicization,European Central Bank,European Parliament,climate,price stability
    Date: 2022
  25. By: Mauricio Villamizar-Villegas; Lucía Arango-Lozano; Geraldine Castelblanco; Nicolás Fajardo-Baquero; Maria A. Ruiz-Sanchez
    Abstract: We investigate whether central banks are able to attract or redirect capital flows, by bringing together the entire empirical literature into the first quantitative meta-analysis on the subject. We dissect policy effects by the type of flow and by the origin of the monetary shock. Further, we assess whether policy effects depend on factors that drive investors to either search for yields or fly to safety. Our findings indicate a mean effect size of inflows in the amount of 0.09% of quarterly GDP in response to either a 100 basis point (bp) increase in the domestic policy rate or a 100bp reduction in the external rate. However, the effect size under a random effect specification is much lower (0.01%). Factors that significantly attract inflows include foreign exchange reserves, output growth, and financial openness, while factors that deter flows include foreign debt, capital controls, and departures from the uncovered interest rate parity. Also, both local and global risks matter (global risks exerting a larger pressure). Finally, we shed light on differences across the different types of flows: banking flows being the most responsive to monetary policy, while foreign direct investment being the least responsive. **** RESUMEN: Este trabajo representa el primer metanálisis cuantitativo sobre si los bancos centrales son capaces de atraer o redirigir los flujos de capital. Se analizan los efectos por tipo de flujo y por el origen del choque monetario. Además, se evalúa si los efectos de las políticas dependen de factores que impulsan a que inversionistas extranjeros busquen rendimientos o, por el contrario, busquen refugio. Nuestros hallazgos indican que, en promedio, el tamaño de las entradas de capital es de 0,09% del PIB trimestral en respuesta a un choque de 100 puntos básicos, ya sea en aumentos de la tasa de política doméstica o en reducciones de la tasa de política externa. Sin embargo, bajo una especificación de efectos aleatorios el tamaño del efecto es mucho menor (0,01%). Los factores que atraen significativamente flujos de capital incluyen el nivel de reservas internacionales, el crecimiento de la producción y el grado de apertura financiera, mientras que los factores que disuaden los flujos incluyen la deuda fiscal, controles de capital y desviaciones de la paridad descubierta de la tasa de interés. También, tanto los riesgos locales como los globales importan (aunque los riesgos globales ejercen una mayor presión). Finalmente, brindamos luces sobre las diferencias entre los tipos de flujos: los flujos bancarios siendo los más reactivos a la política monetaria, y los de inversión extranjera directa los menos reactivos.
    Keywords: Meta-Analysis, Capital Flows, Monetary Policy, Meta-Análisis, Flujos de Capital, Política Monetaria
    JEL: C83 E58 F21 F31 F32
    Date: 2022–08
  26. By: Benjamín García; Mario González; Sebastián Guarda; Manuel Paillacar
    Abstract: With the economy facing an unprecedented hit due to the COVID-19 pandemic, the Central Bank of Chile and the Chilean government jointly implemented several programs aimed at increasing liquidity and maintaining the flow of funds in the economy. In this paper, we extend the model described in Calani et al. (2022), a structural large-scale DSGE model with a financial system and financial frictions, to assess the impact of the different credit programs implemented during the COVID-19 crisis. We find that the policies’ most significant impact was due to the FOGAPE program and from their joint ability to reduce credit risk. The quantitative analysis carried on in this paper shows that the contraction of GDP in 2020 was between 2.7 and 5.4 percentage points milder thanks to the implemented liquidity and credit policies.
    Date: 2022–05
  27. By: Alyssa G. Anderson; Philippa Marks; Dave Na; Bernd Schlusche; Zeynep Senyuz
    Abstract: As discussed in the first note of this two-note series, net income of the Federal Reserve (Fed) and its remittances to the U.S. Treasury along with the unrealized gain or loss position of the System Open Market Account (SOMA) portfolio are affected by fluctuations in interest rates. The need for the Fed to increase the policy rate expeditiously to address the inflationary pressures is projected to result in the Fed's net income turning negative temporarily.
    Date: 2022–07–15
  28. By: Miguel Acosta-Henao; Sangeeta Pratap; Manuel Taboada
    Abstract: Using confidential credit-registry data on the universe of loans, we characterize the monthly behavior of relationship lending in Chile between 2012 and 2019. We focus on two dimensions of relationships between firms and banks: their duration, and their concentration. We uncover four stylized facts about relationship lending: their be-havior through time, cyclical properties, properties of credit contracts, and how they affect monetary policy transmission. Our results show that relationship lending plays an important role in the process of credit allocation.
    Date: 2022–05
  29. By: Sami Ben Naceur; Bertrand Candelon; Mohamed Belkhir; Jean-Charles Wijnandts
    Abstract: This paper studies the transmission of macroprudential policies across both financial and non financial sectors of the economy. It first documents that tighter macroprudential regulations implemented in Europe over the period 2008–2017 lowered default risk not only in the financial, but also in non-financial sectors. Second, the paper analyzes the impact of two reforms in the macroprudential framework. Higher capital requirements improve the long-run resilience of the financial sector but at the cost of raising long-term default risk in non-financial sectors. Strengthening the resolution framework for failing banks has beneficial long-run effects on the default risks of the financial and non-financial sectors. Our results concur with the literature documenting how banks adjust their balance sheet composition and credit supply in reaction to changes in their regulatory environment.
    Keywords: Macroprudential regulation; Default risk; Capital requirements; Bank bail-in
    Date: 2022–07–15
  30. By: Abigail M. Roberts
    Abstract: In this note, we examine borrowing activity through the discount window's primary credit program subsequent to the program changes made in March 2020 to assess the extent to which banks' behavior appeared consistent with their reported views of the discount window. Views were collected from 80 banks in the September 2020 Senior Financial Officer Survey (SFOS).
    Date: 2022–06–30
  31. By: Tunio, Mohsin Waheed
    Abstract: This paper first looks for Sudden Stops in capital inflows to nineteen emerging economies of Asia, Europe, Latin America, and Africa as Calvo, Izquierdo and Mejia (2008) based on the country-specific data availability from January 1990 to May 2022. The paper then introduces the notion of Systemic Sudden Stop as the one triggered by exogenous factors and measured in terms of a rise in Emerging Market Bond Index (EMBI) spreads. The author finds out that four countries i.e. Indonesia, Thailand, Poland, and Egypt have already entered into the Systemic Sudden Stop phase while other emerging economies could also be at a greater risk of the similar situation. The major risks to emerging markets come from the commodity prices and rising inflation due to the Russia-Ukraine conflict; tightening financial conditions; mounting uncertainty; and recessionary fears. Nevertheless, on the positive note, net ratings of emerging market sovereign bonds have improved in comparison with the year 2020, and EMBI spreads have not increased much due to greater risk being already priced-in, especially in high yield.
    Keywords: sudden stops, capital inflows, capital outflows, emerging markets, exchange rate, current account, EMBI spreads
    JEL: F31 F32 F39 F41
    Date: 2022–07
  32. By: Daniele Bianchi; Mykola Babiak; Alexander Dickerson
    Abstract: We provide empirical evidence within the context of cryptocurrency markets that the returns from liquidity provision, proxied by the returns of a short-term reversal strategy, are primarily concentrated in trading pairs with lower levels of market activity. Empirically, we focus on a moderately large cross section of cryptocurrency pairs traded against the U.S. Dollar from March 1, 2017 to March 1, 2022 on multiple centralised exchanges. Our findings suggest that expected returns from liquidity provision are amplified in smaller, more volatile, and less liquid cryptocurrency pairs, where fear of adverse selection might be higher. A panel regression analysis confirms that the interaction between lagged returns and trading volume contains significant predictive information about the dynamics of cryptocurrency returns. This is consistent with theories that highlight the roles of inventory risk and adverse selection for liquidity provision.
    Keywords: liquidity provision; short-term reversal; trading volume; empirical asset pricing; adverse selection;
    JEL: G12 G17 E44 C58
    Date: 2022–06
  33. By: Sarthak Behera; Hyeongwoo Kim; Soohyon Kim
    Abstract: Utilizing an array of data dimensionality reduction methods, we estimate latent common factors for the Won/Dollar real exchange rate from a large panel of economic predictors of the U.S. and Korea. We demonstrate superior out-of-sample predictability of our factor augmented forecasting models relative to conventional models when we utilize factors obtained from U.S. economic variables, while the Korean factors fail to enhance predictability. Our models perform better at longer horizons when the American real activity factors are employed, whereas the American nominal/financial market factors help improve short-run prediction accuracy. The UIP-based global factors with the dollar as numéraire overall perform well, while the PPP and RIRP factors play a limited role in forecasting the Won/Dollar exchange rate.
    Keywords: Won/Dollar Real Exchange Rate; Principal Component Analysis; Partial Least Squares; LASSO; Out-of-Sample Forecast
    JEL: C38 C53 C55 F31 G17
    Date: 2022–07
  34. By: Davide Romaniello
    Abstract: A recent explanation of hysteresis in unemployment, refers to long-term unemployed as a cause of downward wage rigidity, since they are detached from the labour market and therefore are no good inflation fighters. Therefore, the debate on the Phillips curve has regained significant traction to explain the missing inflation matter. Based on the above-mentioned interpretation of hysteresis some scholars tried to provide a new estimation of the NAIRU incorporating short-term unemployed uniquely or taking into account the relative weight of unemployment duration. This essay is situated within this line of inquiry as it investigates whether the conclusion that long-term unemployment is less relevant for the inflation path, than the short one, depends on the assumption of linearity in the Phillips curve. The thesis we want to test is whether the lower effect of long-term unemployment on wage dynamics comes from not considering the convexity of the Phillips curve. Indeed, the phenomenon of long-term unemployment spreads in correspondence to a very high total unemployment rate, when the Phillips curve is flat. By contrast, no appreciable differences between short and long-term unemployment in affecting nominal wage would appear when convexity is considered. Using panel data of 25 OECD countries for the 1970-2016 period, we test the difference between short and long-term unemployment rate coefficients in a linear version of the Phillips curve and verify that there is no statistical difference between them. Then, we impose a convex shape to the relationship and test the relevance of the very high incidence of long-term unemployment in nominal wage inflation. Our findings indicate that once convexity in the Phillips curve is proved, no relevant difference between long and short-term unemployed in wage-setting exists.
    Keywords: Hysteresis, long-term unemployment, NAIRU, conflict-claim inflation
    JEL: E24 E12 E21
    Date: 2022–05

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