nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒10‒31
33 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Monetary Policy and Endogenous Financial Crises By F Boissay; F Collard; J Galí; C Manea
  2. Should we care about ECB inflation expectations? By Roccazzella, Francesco; Candelon, Bertrand
  3. Ensuring adoption of central bank digital currencies – An easy task or a Gordian knot? By Zamora-Pérez, Alejandro; Coschignano, Eliana; Barreiro, Lorena
  4. 25 years of excess unemployment in advanced economies: Lessons for monetary policy By Joseph E. Gagnon; Madi Sarsenbayev
  5. With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows? By Catherine Huang; Adam Copeland; Kailey Kraft
  6. Measuring the Ampleness of Reserves By Gara Afonso; Gabriele La Spada; John C. Williams
  7. The Macroeconomic Effects of Macroprudential Policy : Evidence from a Narrative Approach By Rojas Alvarado,Luis Diego; Vegh,Carlos; Vuletin,Guillermo Javier
  8. The ECB press conference: a textual analysis By Pavelkova, Andrea
  9. Foreign currency exposure and the financial channel of exchange rates By Longaric, Pablo Anaya
  10. One size may not fit all: Financial fragmentation and European monetary policies By Marie‐hélène Gagnon; Céline Gimet
  11. Archetypes for a retail CBDC By Sriram Darbha
  12. The Liquidity Premium of Digital Payment Vehicle By Zefeng Chen; Zhengyang Jiang
  13. Trapped in the Trilemma: When Security Trumps Economics By Michael D. Bordo; Harold James
  14. An analysis of central bank decision-making By Maria Demertzis; Catarina Martins; Nicola Viegi
  15. Is Real Interest Rate a Monetary Phenomenon in Advanced Economies? Time-Varying Evidence from Over 700 Years of Data By Vasilios Plakandaras; Rangan Gupta; Mark E. Wohar
  16. Firming up Price Inflation By Philip Bunn; Lena S. Anayi; Nicholas Bloom; Paul Mizen; Gregory Thwaites; Ivan Yotzov
  17. Bank interest rate margins in a negative interest rate environment By Jorien Freriks; Jan Kakes
  18. Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach By Maran, Raluca
  19. Comecon Monetary Mechanisms. A history of socialist monetary integration (1949 – 1991) By Faudot, Adrien; Marinova, Tsvetelina; Nenovsky, Nikolay
  20. Examining recent revisions to CPI-common By Elyse Sullivan
  21. A dissonant violin in the international orchestra? Discount rate policy in Italy (1894-1913) By Di Martino Paolo; Bagliano Fabio
  22. "Dynamic connectedness between credit and liquidity risks in EMU sovereign debt markets". By Marta Gómez-Puig; Mary Pieterse-Bloem; Simón Sosvilla-Rivero
  23. When are devaluations more contractionary? A Quantile VAR estimation for Argentina By Gabriel Montes-Rojas; Nicolás Bertholet
  24. Who Can Tell Which Banks Will Fail? By Kristian Blickle; Markus Brunnermeier; Stephan Luck
  25. Zero-Ending Prices, Cognitive Convenience, and Price Rigidity By Snir, Avichai; Chen, Haipeng (Allan); Levy, Daniel
  26. The risk premium in New Keynesian DSGE models: the cost of inflation channel By Iania, Leonardo; Tretiakov, Pavel; Wouters, Rafael
  27. New SCE Charts Include a Measure of Longer-Term Inflation Expectations By Felix Aidala; Olivier Armantier; Fatima-Ezzahra Boumahdi; Gizem Koşar; Devon Lall; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw
  28. Zero-Ending Prices, Cognitive Convenience, and Price Rigidity By Avichai Snir; Haipeng; Chen; Daniel Levy
  29. Non-bank financial institutions and the slope of the yield curve By Sebastian Infante; Phillip J. Monin; Lubomir Petrasek; Mary Tian
  30. Heterogeneous Effects of Monetary and Non-Monetary Job Characteristics on Job Attractiveness in Nursing By Martin Kroczek; Philipp Kugler
  31. Measuring macroeconomic uncertainty during the euro’s lifetime By Monika Grzegorczyk; Francesco Papadia
  32. Not an ordinary bank but a great engine of state: the Bank of England and the British economy, 1694–1844 By O'Brien, Patrick K.; Palma, Nuno
  33. Government Spending and Money Supply Roles in Alleviating Poverty in Africa By Gbatsoron Anjande; Simeon T Asom; Ngutsav Ayila; Bridget Ngodoo Mile; Victor Ushahemba Ijirshar

  1. By: F Boissay (BIS - Bank for International Settlements); F Collard (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); J Galí (Pompeu Fabra University, Departament de Traducció i Ciències del Llenguatge); C Manea (Bundesbank - Bundesbank)
    Abstract: We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course.
    Keywords: Financial crisis,Monetary policy
    Date: 2022–08–29
  2. By: Roccazzella, Francesco; Candelon, Bertrand (Université catholique de Louvain, LIDAM/LFIN, Belgium)
    Abstract: We use optimal combination of forecasts to introduce a novel forecast encompass- ing test to evaluate time-series and institutional inflation projections in the euro area. Combination weights reveal which forecasts are the most informative. Although, ECB is the most informative forecaster on average, it does not encompass its competitors and its weight varies over time. Macro-financial conditions and monetary policy ac- tions explain this variability. The greater the uncertainty surrounding inflation and the difference between current and the 2% inflation target, the less informative ECB’s forecasts are. The more contractionary the monetary policy, the more informative they are. ECB’s declining weight and the relation with its determinants raise a warning flag: the potential loss of informativeness damages ECB’s leading role at anchoring inflation expectations and questions whether the goal of preserving financial stability is compatible with the inflation targeting objective.
    Keywords: Forecast combinations ; Forecast evaluation ; Inflation ; euro area ; ECB
    Date: 2022–06–15
  3. By: Zamora-Pérez, Alejandro; Coschignano, Eliana; Barreiro, Lorena
    Abstract: Central banks have been discussing the introduction of a retail central bank digital currency (rCBDC) for some time. However, potential obstacles to its adoption by consumers and retailers remain largely unexplored in the academic and policy literature. This paper surveys the key elements involved in the adoption of any new means of payment and discusses failed and ongoing initiatives with public digital money. It concludes that ensuring the desired level of adoption of rCBDCs may impose significant constraints on central bank design choices and policy goals. In fact, in some settings, central banks may find themselves on the horns of a dilemma in seeking to balance the needs to (i) preserve the central bank’s hierarchy of policy goals, (ii) increase the chances of adoption and use of rCBDCs by consumers and retailers, and (iii) avoid any adverse economic effects. JEL Classification: E42, E58, D12
    Keywords: central bank digital currency, demand for money, means of payment
    Date: 2022–10
  4. By: Joseph E. Gagnon (Peterson Institute for International Economics); Madi Sarsenbayev (Peterson Institute for International Economics)
    Abstract: For about 25 years before the COVID-19 pandemic, inflation was very low and stable in most advanced economies. A little noticed dark side of this impressive achievement is that unemployment rates were almost always higher than needed to keep inflation low. This widespread and persistent policy error arose because of a major flaw in standard macroeconomic models--the use of a linear Phillips curve. This flaw would have been far less costly if central banks had not chosen such a low target for inflation. This paper thus adds to the arguments in favor of a moderately higher inflation target. Even without a higher target, central banks need to use a broader range of economic models and should verify their estimates of the natural rate of unemployment by running the economy hot from time to time in order to see nascent inflationary pressure before throttling back.
    Keywords: Nonlinear Phillips curve, equilibrium rate of unemployment (U*), equilibrium real rate of interest (R*), inflation target, downward wage and price rigidity
    JEL: E24 E31 E52 E58
    Date: 2022–10
  5. By: Catherine Huang; Adam Copeland; Kailey Kraft
    Abstract: As a result of the global financial crisis (GFC), the Federal Reserve switched from a regime of scarce reserves to one of abundant reserves. In this post, we explore how banks’ day-to-day management of reserve balances with respect to payment flows changed with this regime switch. We find that bank behavior did not change on average; under both regimes, banks increased their opening balances when they expected higher outgoing payments and, similarly, decreased these balances with expected higher incoming payments. There are substantial differences across banks, however. At the introduction of the abundant-reserves regime, small domestic banks no longer adjusted balances alongside changes in outgoing payments.
    Keywords: quantitative easing (QE); liquidity; reserves; payments; Federal Reserve; banks
    JEL: E52
    Date: 2022–10–12
  6. By: Gara Afonso; Gabriele La Spada; John C. Williams
    Abstract: Over the past fifteen years, reserves in the banking system have grown from tens of billions of dollars to several trillion dollars. This extraordinary rise poses a natural question: Are the rates paid in the market for reserves still sensitive to changes in the quantity of reserves when aggregate reserve holdings are so large? In today’s post, we answer this question by estimating the slope of the reserve demand curve from 2010 to 2022, when reserves ranged from $1 trillion to $4 trillion.
    Keywords: reserve demand; federal funds; ample reserves; monetary policy
    JEL: E52
    Date: 2022–10–05
  7. By: Rojas Alvarado,Luis Diego; Vegh,Carlos; Vuletin,Guillermo Javier
    Abstract: This paper analyzes the macroeconomic effects of macroprudential policy—in the form of legalreserve requirements—in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identifyinnovations in changes in legal reserve requirements, a narrative approach—based on contemporaneous reports from theIMF and central banks in the spirit of Romer and Romer (2010)—is developed in which each change is classified intoendogenous or exogenous to the business cycle. This distinction is critical in understanding the macroeconomiceffects of reserve requirements. In particular, while output falls in response to exogenous increases in legal reserverequirements, it is not affected when using all changes and relying on traditional time-identifying strategies. Thisbias reflects the practical relevance of the misidentification of endogenous countercyclical changes inreserve requirements. The empirical frontier is also pushed along two important dimensions. First, in measuring legalreserve requirements, both the different types of legal reserve requirements in terms of maturity and currency ofdenomination as well as the structure of deposits are taken in account. Second, since in practice reserve requirementpolicy is tightly linked to monetary policy, the study jointly analyze the macroeconomic effects of changes incentral bank interest rates. To properly identify exogenous central bank interest rate shocks, the Romer and Romer(2004) strategy is used.
    Date: 2022–08–24
  8. By: Pavelkova, Andrea
    Abstract: The aim of central bank communication is to provide information on monetary policy and the economic outlook in a timely manner to the public. While research on central bank communication and specifically the European Central Bank’s press conference has shown that it has the potential to move markets, in-depth textual analysis of key communication tools creates room for further analysis. Focusing on the press conferences of the ECB, this paper employs structural topic modelling (STM) and finds that topics within the introductory statement and the Q&A are significantly different, with a nearly equal split of topics unique to both parts. The split of topics suggests that the Q&A does not only provide clarification of what has been said in the introductory statement, but also allows journalists to enquire about the discussion within the Governing Council as well as the ECB’s stance on broader economic issues. JEL Classification: E50, E52, E58
    Keywords: central bank communication, ECB press conference, natural language processing, structural topic model, text analysis
    Date: 2022–10
  9. By: Longaric, Pablo Anaya
    Abstract: Exchange rate movements affect the economy through changes in net exports, i.e. the trade channel, and through valuation changes in assets and liabilities denominated in foreign currencies, i.e. the financial channel. In this paper, I investigate the macroeconomic and financial effects of U.S. dollar (USD) exchange rate fluctuations in small open economies. Specifically, I examine how the financial channel affects the overall impact of exchange rate fluctuations and assess to what extent foreign currency exposure determines the financial channel’s strength. My empirical analysis indicates that, if foreign currency exposure is high, an appreciation of the domestic currency against the USD is expansionary and loosens financial conditions, which is consistent with the financial channel of exchange rates. Moreover, I estimate a small open economy New Keynesian model, in which a fraction of the domestic banks’ liabilities is denominated in USD. In line with the empirical results, the model shows that an appreciation against the USD can be expansionary depending on the strength of the financial channel, which is linked to the level of foreign currency exposure. Finally, the model indicates that the financial channel amplifies the effects of foreign monetary policy shocks. JEL Classification: E44, F31, F41
    Keywords: exchange rates, financial and trade channels, local projections - instrumental variable, open economy DSGE model
    Date: 2022–10
  10. By: Marie‐hélène Gagnon (ULaval - Université Laval [Québec], CRREP - Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques - ULaval - Université Laval [Québec]); Céline Gimet (Institut d'Études Politiques [IEP] - Aix-en-Provence, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This article investigates the impact of European Central Bank policies on credits considering financial and banking fragmentation. Using European data from the past decade, we estimate SVAR models to analyze the regional impact of conventional and unconventional measures on price and volume indicators of fragmentation. The risk-taking channel is studied using GVAR models to document the national consequences of this fragmentation. We find that unconventional measures increase credit in peripheral countries. Monetary policies alleviate fragmentation, but mostly in terms of price dispersion rather than credit volume. Finally, unconventional measures imply a rebalancing of European bank assets in favor of foreign currency denominated-assets.
    Keywords: banking fragmentation,financial fragmentation,monetary policy,risk-taking channel
    Date: 2022
  11. By: Sriram Darbha
    Abstract: A variety of technology designs could support retail central bank digital currency (CBDC) systems. We develop five archetypes of CBDC systems, outline their characteristics and discuss their trade-offs. This work serves as a framework to analyze and compare different designs, independent of vendor, platform and implementation.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E E4 E42 E5 E51 O O3
    Date: 2022–10
  12. By: Zefeng Chen; Zhengyang Jiang
    Abstract: Do digital payment technologies generate liquidity premia like cash and Treasury? We provide an estimate in the context of the world’s largest digital payment platform, Alipay. Our empirical strategy exploits the variation in the timing of the introduction of money market funds that users on this platform can hold and use for digital transactions. We find that, once a fund becomes eligible for these transactions, its size increases by 45 times on average. Through the lens of a demand system that models funds as imperfect substitutes, this size increase maps to a liquidity premium of about 0.8% per annum.
    Keywords: digital payment, liquidity premium, money market fund
    JEL: E41 G12
    Date: 2022
  13. By: Michael D. Bordo; Harold James
    Abstract: This paper describes the challenges of globalization in terms of the logic underpinning four distinct policy constraints or “trilemmas” and their interrelationship; in particular the disturbances that arise from capital flows and the difficulties of adjusting monetary policies to a global monetary environment. These trilemmas intersect and interlock. The trilemmas are: 1. The traditional Macroeconomic trilemma between capital mobility, fixed exchange rates and monetary autonomy; 2. The International relations trilemma between capital mobility, sovereignty and international order; 3. The Political economy trilemma between capital mobility, democracy and sovereignty; 4. The Financial stability trilemma between capital mobility, financial stability and independent national policies. The four trilemmas offer a way to analyze how domestic monetary, financial, economic and political systems are interconnected within the international system that opens up vulnerabilities. They can be described as the impossible policy choices at the heart of globalization.
    JEL: E52 E60 F30 F40 G28 N1
    Date: 2022–09
  14. By: Maria Demertzis; Catarina Martins; Nicola Viegi
    Abstract: Bank of England MPC celebrates 25 years and we use this occasion to compare its decision-making process to that of the ECB
    Date: 2022–07
  15. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, 69100, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA)
    Abstract: In this paper we examine the effect of permanent inflation shocks on real interest rates, based on a structural Time-Varying Parameter Vector Autoregression (TVP-VAR) model that account for parameter instability. This is important since we use over 700 years of annual data that covers the entire economic history for France, Germany, Holland (the Netherlands), Italy, Japan, Spain, the United Kingdom (UK) and the United States (US), going as far back as 1310. Based on the responses of real interest rates to an inflation shock, the Fisherian hypothesis of a one-to-one movement of inflation to nominal interest rates can only be rejected episodically, in favour of a Mundell-Tobin effect of less than proportional increase in the nominal interest rate to an inflation shock. In other words, generally speaking, real interest rate in the long-run tends to be unaffected by inflation shocks, as derived from longest possible data samples of real interest rates and inflation for the advanced economies considered. Hence, the results in the existing literature based on post World War II samples, should be treated with caution due to the possibility of sample selection bias. Our findings, that real interest rates might not necessarily be a monetary phenomenon, have important policy implications in the current context of rising global inflation rates.
    Keywords: Inflation, Real interest rate, TVP-VAR
    JEL: C32 E31 E43
    Date: 2022–09
  16. By: Philip Bunn; Lena S. Anayi; Nicholas Bloom; Paul Mizen; Gregory Thwaites; Ivan Yotzov
    Abstract: We use data from a large panel survey of UK firms to analyze the economic drivers of price setting since the start of the Covid pandemic. Inflation responded asymmetrically to movements in demand. This helps to explain why inflation did not fall much during the negative initial pandemic demand shock. Energy prices and shortages of labor and materials account for most of the rise during the rebound. Inflation rates across firms have become more dispersed and skewed since the start of the pandemic. We find that average price inflation is positively correlated with the dispersion and skewness of the distribution. Finally, we also introduce a novel measure of subjective inflation uncertainty within firms and show how this has increased during the pandemic, continuing to rise in 2022 even as sales uncertainty dropped back.
    JEL: C83 D22 D84 E31
    Date: 2022–09
  17. By: Jorien Freriks; Jan Kakes
    Abstract: This paper studies the impact of the negative interest rate policy (NIRP) on euro area banks’ interest rate margins, using bank-individual data for the 2007-2019 period. An important extension to other studies is our breakdown of banks’ interest rate margin into a funding and lending component. Because of banks’ reluctance to reduce the interest rate on household deposits below zero, the funding margin of banks more reliant on deposit funding has declined compared to that of other banks. Our evidence shows that these banks have been unwilling or unable to compensate this by boosting their lending margins. Therefore, negative rates have significantly reduced the overall net interest margin of deposit-dependent banks compared to other banks.
    Keywords: monetary policy; negative interest rates; banks, interest margin
    JEL: E43 E52 G21
    Date: 2021–07
  18. By: Maran, Raluca
    Abstract: This paper uses an event study analysis to assess how stock prices in the Philippines have reacted to domestic monetary-policy changes using data at a daily frequency from 2017 to 2022. A major contribution of this paper is the construction of a monetary-policy surprise measure for the Philippines, as the difference between the actual change in the monetary policy rate and the change anticipated by professional forecasters. My results are consistent with the literature, suggesting that unanticipated monetary policy changes exert a significant influence on stock prices in the Philippines. Overall, I find that an unexpected increase of 25 basis points in the monetary policy rate increases stock prices by about 1.09% on average. These results are robust to the inclusion of additional control variables in the baseline regression model, such as the implementation of restrictions to economic activity to curb the spread of the COVID-19 outbreak or revisions to macroeconomic forecasts released concomitantly with the monetary-policy rate announcement.
    Keywords: Event study; government policy responses; monetary policy surprise; Philippines; stock market returns.
    JEL: E52 G14
    Date: 2022–10–03
  19. By: Faudot, Adrien; Marinova, Tsvetelina; Nenovsky, Nikolay
    Abstract: Today's fragmentation of the world economy, the emergence in the near future of large economic blocs operating in different ideological and conceptual models of economy and society, and the fierce struggle for resources and influence, logically lead us turn to history, including the recent one. The issue of the functioning and collapse of the socialist monetary community has another, more specific but also topical meaning. It has to do with understanding the mechanisms of disintegration of the European Union and the euro area, its management and eventual overcoming. In this paper, we focus on the study of monetary mechanisms within the socialist system, and more specifically on its model of integration, the Comecon, which lasted from 1949 to 1991. In the first part we present the basic principles of socialist integration and the role of international socialist money. In the second part we present the main stages in the evolution of the monetary mechanisms of Comecon. The third part is devoted to some technical problems of multilateral payments and the peculiarities of the transfer ruble. Finally, we try to compare with European Payment Union. We present some competing hypotheses, answering the question why the monetary system of Comecon failed.
    Keywords: socialist integration, Comecon, transferable ruble, European Payment Union, Soviet Union, commodity-money relations, multilateral clearing
    JEL: E42 F15 F45 N14 N24 P30
    Date: 2022–07–20
  20. By: Elyse Sullivan
    Abstract: Unusually large revisions to CPI-common in recent months stem from increased common movements across consumer price index components amid broad inflationary pressures. With recent revisions, CPI-common is more closely aligned with the Bank of Canada’s other two preferred measures of core inflation. However, caution is necessary when interpreting real-time estimates of CPI-common in the current environment.
    Keywords: Econometric and statistical methods; Inflation and prices
    JEL: C13 C18 E31
    Date: 2022–10
  21. By: Di Martino Paolo (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS), University of Torino, Italy;); Bagliano Fabio (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and Collegio Carlo Alberto, University of Torino, Italy;)
    Abstract: Based on a new series and applying econometric techniques, this paper investigates the discount rate policy implemented by the main Italian bank of issue of the time, the Banca d'Italia. We focus on two interrelated aspects of the problem. Firstly, anchoring our analysis to the Bank's annual reports, we enquiry into the general determinants of its discount rate variations. Secondly, we study the reaction of the Italian rate to exogenous changes in leading international official rates. We show that discount rate variations responded to short-term fluctuations of official rates in the UK and France but, simultaneously, to deviations from long-term equilibrium relations involving two pairs of variables. On the one hand, a relationship between the Italian discount rate and the French open market rate; on the other hand, a link between the Bank's reserve ratio and its exposure to the national credit market. We also show that reactions to variations in foreign official rates were of a very limited magnitude. This ``sterilisation" policy came with little repercussions in terms of exchange rate fluctuations or loss of international reserves, somehow in contrast with the results of the recent literature.
    Keywords: Bank of Italy, Discount Rate Policy, International Gold Standard, Sterilization
    JEL: N13 N23 E58 F33
    Date: 2022–10
  22. By: Marta Gómez-Puig (Department of Economics and Riskcenter, Universitat de Barcelona. 08034 Barcelona, Spain.); Mary Pieterse-Bloem (Section Finance in Business Economics, Erasmus School of Economics, 3062 PA, Rotterdam, and Rabobank**, 3521 CB, Utrecht, the Netherlands. Phone: +316-5136 5132.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid. 28223 Madrid, Spain.)
    Abstract: We examine the dynamic interconnection between sovereign credit and liquidity risks in ten euro area countries at the 5-year maturity with high-frequency data from MTS over the period January 2008-December 2018 using the extension of the TVP-VAR connectedness approach of Antonakakis et al. (2020). Our results indicate that for most periods net connectedness is from credit risk to liquidity risk, but this indicator is time-dependent, detecting some episodes where it goes from liquidity risk to credit risk. We set up an event study and find that the latter episodes can be related to several unconventional monetary policy measures of the ECB. Then, we examine the drivers of the connectedness indicator by means of a Probit model. Our results suggest that monetary policy shocks and economic policy uncertainty increase the probability of risk transmission from liquidity to credit, while global funding liquidity, tensions in financial markets and surprises in inflation and GDP are factors that reduce such probability.
    Keywords: Liquidity risk, Credit risk, Eurozone sovereign bonds, MTS bond market, Dynamic connectedness, Time-varying parameters. JEL classification: C22, C53, G12, G14, G15.
    Date: 2022–10
  23. By: Gabriel Montes-Rojas (UBA/CONICET); Nicolás Bertholet (IIEP/BAIRES/UBA/CONICET)
    Abstract: This paper presents empirical evidence on the short- and medium-run contractionary effects of exchange rate shocks and currency devaluations for bimonetary (i. e., highly dollarized) countries. In particular, for Argentina for the period January 2004-December 2018. Using a VAR representation with quantile heterogeneity, it implements a multivariate model with four macroeconomic variables: exchange rate variations, inflation, economic activity and nominal wage growth. The empirical results show a 30% price pass-through effects and a bimodal effect on output, with both positive and negative effects. Wages adjust less than prices with the consequent effect that real wages have a negative elasticity of 0.23 with respect to exchange rate shocks. Further analysis on the multivariate responses show that the negative effect on output is associated with a decline in real wages: a 1% fall in real wages after a currency devaluation produces a 2.3% decline in output.
    JEL: C13 C14 C22
    Date: 2022–10
  24. By: Kristian Blickle (Federal Reserve Bank of New York); Markus Brunnermeier (Princeton University); Stephan Luck (Federal Reserve Bank of New York)
    Abstract: We use the German Crisis of 1931, a key event of the Great Depression, to study how depositors behave during a bank run in the absence of deposit insurance. We find that deposits decline by around 20% during the run and that there is an equal outflow of retail and non-financial wholesale deposits from both ex-post failing and surviving banks. This implies that regular depositors are unable to identify failing banks. In contrast, the interbank market precisely identifies which banks will fail: the interbank market collapses for failing banks entirely but continues to function for surviving banks, which can borrow from other banks in response to deposit outflows. Since regular depositors appear uninformed, it is unlikely that deposit insurance would exacerbate moral hazard. Instead, interbank depositors are best positioned for providing “discipline†via short-term funding.
    Keywords: financial crises, banks, Germany
    JEL: G01 G21 N20 N24
    Date: 2022–02
  25. By: Snir, Avichai; Chen, Haipeng (Allan); Levy, Daniel
    Abstract: We assess the role of cognitive convenience in the popularity and rigidity of 0-ending prices in convenience settings. Studies show that 0-ending prices are common at convenience stores because of the transaction convenience that 0-ending prices offer. Using large store-level retail CPI data, we find that 0-ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominick’s and Nielsen. In Dominick’s data, we find that there are more 0-endings in the prices of the items in the front-end candies category than in any other category, even though these prices do not affect the convenience of the consumer’s check-out transaction. In addition, in both Dominick’s and Nielsen datasets, we find that 0-ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers’ use of heuristics in pricing, we conclude that 0-ending prices are popular and rigid, and that they increase demand in convenience settings, not only for their transaction convenience but also for the cognitive convenience they offer.
    Keywords: Cognitive Convenience; Transaction Convenience; Price Rigidity; Price Stickiness; Sticky Prices; Rigid Prices; 0-Ending Prices; Round Prices; Convenient Prices; 9-Ending Prices; Just Below Prices; Psychological Prices; Price Points
    JEL: D90 E31 L16 M30
    Date: 2022–09–21
  26. By: Iania, Leonardo (Université catholique de Louvain, LIDAM/LFIN, Belgium); Tretiakov, Pavel (Université catholique de Louvain, LIDAM/LFIN, Belgium); Wouters, Rafael (National Bank of Belgium)
    Abstract: We study the role of the cost of inflation channel in determining the risk premium in a (nonlinear) New Keynesian DSGE model. Relying on a Calvo (or Rotemberg) price setting, we show that while the cost of inflation channel generates the desired term premium moments, it suffers from nontrivial, counterintuitive approximation errors in the price dispersion function. In addition to documenting the issues, we propose ways to alleviate them, including a quasikinked demand function as a risk-generating mechanism.
    Date: 2022–08–24
  27. By: Felix Aidala; Olivier Armantier; Fatima-Ezzahra Boumahdi; Gizem Koşar; Devon Lall; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw
    Abstract: Today, the New York Fed introduces several new data series and interactive charts depicting findings from its Survey of Consumer Expectations (SCE). The SCE is a representative, internet-based monthly survey of a rotating panel of about 1,300 household heads in the United States. Since January 2014, we have been reporting findings from our monthly survey on U.S. households’ views on inflation, household income and spending growth, their expectations about the housing and labor market, and a range of other expectations about the economy and outcomes for their own household. In addition to publishing interactive charts showing national trends as well as trends by demographic groups (such as age, income, education, numeracy, and geography), we also post the underlying microdata online (with a nine-month lag) to make it available for research purposes. We are adding three new data series to our interactive charts today. The first two concern expectations about future inflation, and the third concerns expectations of future home price growth.
    Keywords: inflation expectations; home price expectations
    JEL: R31
    Date: 2022–10–11
  28. By: Avichai Snir (Allan); Haipeng (Allan); Chen; Daniel Levy
    Abstract: We assess the role of cognitive convenience in the popularity and rigidity of 0 ending prices in convenience settings. Studies show that 0 ending prices are common at convenience stores because of the transaction convenience that 0 ending prices offer. Using a large store level retail CPI data, we find that 0 ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominicks and Nielsen. In the Dominicks data, we find that there are more 0 endings in the prices of the items in the front end candies category than in any other category, even though these prices have no effect on the convenience of the consumers check out transaction. In addition, in both Dominicks and Nielsens datasets, we find that 0 ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers use of heuristics in pricing, we conclude that 0 ending prices are popular and rigid, and that they increase demand at convenience settings, not only for their transaction convenience, but also for the cognitive convenience they offer.
    Date: 2022–10
  29. By: Sebastian Infante; Phillip J. Monin; Lubomir Petrasek; Mary Tian
    Abstract: In this note, we examine how changes in the yield curve slope affect the provision of credit and intermediation services by non-bank financial institutions (NBFIs), including broker-dealers and hedge funds. Although these NBFIs typically do not lend directly to the non-financial sector, they indirectly support the flow of credit by investing in debt securities and extending financing to investors who own such securities.
    Date: 2022–10–11
  30. By: Martin Kroczek; Philipp Kugler
    Abstract: We apply a novel methodological approach described by Chernozhukov, Fern´andez-Val & Luo (2018), to analyze preference heterogeneity regarding non-monetary job characteristics and trade-offs between wage and non-monetary job characteristics. Using this approach, we can describe preference heterogeneity more concise than with subgroup analysis. Analyzing data from a selfconducted factorial survey experiment on nurses, we find significant effect heterogeneity regarding the single job characteristics and the trade-offs between wage and non-monetary job characteristics. We also find positive interaction effects between wage and other job characteristics. We further analyze which factors are associated with effect heterogeneity. Working hours and gender appear to be the main drivers of these effects. We also find differences regarding the sources of a nurse’s motivation to initially choose the nursing occupation. Differentiation of job characteristics (job offers) to fit different preferences can therefore be a more effective and efficient way to attract workers than a “one size fits all” solution. Regarding nursing jobs, there is some evidence for such differentiation.
    Keywords: labor supply; wage; non-monetary job characteristics; heterogeneity analysis; nurses
    JEL: J22 J31 J32 I11
    Date: 2022–09–26
  31. By: Monika Grzegorczyk; Francesco Papadia
    Abstract: We draw out four indicators of macroeconomic uncertainty, measured over the lifetime of the euro.
    Date: 2022–06
  32. By: O'Brien, Patrick K.; Palma, Nuno
    Abstract: From its foundation as a private corporation in 1694, the Bank of England extended large amounts of credit to support the British private economy and to support an increasingly centralised British state. The Bank helped the British state reach a position of geopolitical and economic hegemony in the international economic order. In this paper, we deploy recalibrated financial data to analyse an evolving trajectory of connections between the British economy, the state, and the Bank of England. We show how these connections contributed to form an effective and efficient fiscal–naval state and promote the development of a system of financial intermediation for the economy. This symbiotic relationship became stronger after 1793. The evidence that we consider here shows that although the Bank was nominally a private institution and profits were paid to its shareholders, it was playing a public role well before Bagehot's doctrine.
    Keywords: Bank of England; national defence; state-building institutions
    JEL: N0
    Date: 2022–09–02
  33. By: Gbatsoron Anjande; Simeon T Asom; Ngutsav Ayila; Bridget Ngodoo Mile; Victor Ushahemba Ijirshar
    Abstract: This study examines the roles of government spending and money supply on alleviating poverty in Africa. The study used 48 Sub-Saharan Africa countries from 2001 to 2017. The study employed one step and two-step system GMM and found that both the procedures have similar results. Different specifications were employed and the model selected was robust, with valid instruments and absence of autocorrelation at the second order. The study revealed that government spending and foreign direct investment have significant negative influence on reducing poverty while money supply has positive influence on the level of poverty in the region. The implication of the finding is that monetary policy tool of money supply has no strong influence in combating the menace of poverty. The study therefore recommends that emphasis should be placed on increasing more of government spending that would impact on the quality of life of the people in the region through multiplier effect, improving the financial system for effective monetary policy and attracting foreign direct inflows through enabling business environment in Africa.
    Date: 2022–09

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