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on Monetary Economics |
| By: | Huang, Guangming |
| Abstract: | Replacing government lump-sum transfers in the household budget by the seigniorage channel in a modified RBC economy, this paper finds that the monetary shocks can impact the real economy effectively in the Neoclassical flexible price condition. The mechanism of the effectiveness is the resource reallocation triggered by monetary shocks. There are three outstanding characteristics of the seigniorage channeled monetary economy—integrality, interactive pricing, and Pareto optimality of the unique equilibrium—all of which are found to be incompatible with the existing dynamic general equilibrium monetary economics. Many vexing issues in macroeconomics are clarified through the lens of the seigniorage channeled monetary economy, including the price puzzle, missing of the liquidity effect, cause of the hump in the impulse-response curves, nonneutrality of growth rate of money and inflation, origin of the money market interest rate, choosing of reactive monetary policy rule, and negative movement of hours under a positive technology shock. The simulation shows that the seigniorage channeled monetary economy matches the empirical results in the literature well. |
| Keywords: | Effectiveness of Monetary Shock, Seigniorage Channel, Flexible Price, Nonneutrality of Inflation, Liquidity Effect, Price Puzzle, Monetary Transmission Mechanism, Money Market Interest Rate, Reactive Monetary Policy, Tax, Public Goods, Neoclassical Macroeconomics E13, E3, E4, E52, E6 |
| JEL: | E13 E3 E4 E5 E6 |
| Date: | 2021–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114532&r= |
| By: | Richhild Moessner |
| Abstract: | We study how precipitation has affected food consumer price inflation (CPI), using dynamic panel estimation of food CPI Phillips curves across countries for 34 OECD member and candidate economies from 1985 to 2010 augmented with climate variables. We allow for nonlinear effects of precipitation on food CPI inflation, and also control for possible nonlinear effects of temperature. We find that precipitation has significant nonlinear effects on food CPI inflation. The coefficient of food CPI inflation on the linear precipitation term is significantly negative, and the coefficient on the quadratic precipitation term is significantly positive. Consequently, food CPI inflation increases as precipitation becomes very low and very high. Moreover, we find that temperature has no additional explanatory power for food CPI inflation over and above that of precipitation. We control for the effects of inflation expectations, the output gap and exchange rate changes on food CPI inflation, which are significant with the expected signs. |
| Keywords: | climate change, precipitation, temperature, inflation, food prices |
| JEL: | E31 E52 E58 Q48 Q58 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9961&r= |
| By: | Olena Kostyshyna; Luba Petersen; Jing Yang |
| Abstract: | We provide a comprehensive assessment of leading monetary policy frameworks away from and at the ELB. Inflation targeting, dual mandate, average inflation targeting under 4- and 10-period horizons, price level targeting, and nominal GDP level targeting are evaluated in a laboratory setting. Contrary to theoretical prediction with full information rational expectations, participants exhibit backward-looking expectations and, consequently, rate-targeting mandates outperform level targeting. More history dependence worsens macroeconomic stability. Inflation expectations are managed better when mandates are framed in terms of inflation rates than price levels. Central bank communication significantly improves the performance of price level targeting. |
| JEL: | C92 E52 E70 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30530&r= |
| By: | Guillermo Santos (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | This paper studies optimal fiscal policy in the context of a DSGE model in which the optimizing government can issue nominal non-contingent debt and is subject to an independent monetary policy setting the nominal interest rate according to an inflation targeting rule. The fiscal authority can stabilize the economy having several tools at its disposal, including government consumption, public investment and distortionary taxes. We focus on the case where the monetary authority sets the nominal interest rate to respond weakly to inflation, the so called passive money regime Leeper (1991). We compare the outcome of optimal fiscal policy in that case with the polar opposite, when the monetary authority aggressively responds to inflation. It is well known that in standard DGSE models (without an optimizing government and when fiscal policy follows ad hoc rules) switching from an active to a passive monetary regime, brings about a considerable increase in macroeconomic volatility, mainly due to inflation fluctuations reflect debt sustainability. We ask whether optimal fiscal policy would choose to set fiscal variables irresponsibly when inflation fiscal debt in the passive money case. We find that the answer is no. The differences in the optimal policy allocation under active/passive monetary policies are small when the fundamental disturbances that hit the economy are standard demand shocks. We show that this result holds both under full commitment and in the case where time-consistent policy cannot commit to the future path of its fiscal variables. In both cases changing the monetary regime from active to passive only has a small effect on equilibrium outcomes. |
| Keywords: | passive monetary policy, optimal fiscal policy, time-consistent equilibrium, public investment |
| JEL: | E31 E52 E62 H21 H54 |
| Date: | 2022–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2022022&r= |
| By: | Baldo, Luca; Heider, Florian; Hoffmann, Peter; Sigaux, Jean-David; Vergote, Olivier |
| Abstract: | We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of the ECB’s two-tier system which heterogeneously reduced the cost of additional reserves holdings. We find that the treated banks increase reserve holdings by borrowing on the interbank market, decreasing lending to affiliates of the same group, and selling marketable securities. We also find that banks have a preference for a stable portfolio composition of liquid assets over time. Our results imply that frictions in one market for liquidity can spill over to several markets. JEL Classification: G21, G11, E52 |
| Keywords: | bank liquidity, central bank reserves, government bonds, monetary policy implementation, money markets |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222732&r= |
| By: | Ruch,Franz Ulrich |
| Abstract: | With close to 30 emerging market and developing economies (EMDEs) using inflation targeting to determine monetary policy, and many of them for over 15 years, it is possible to create a meaningful measure of neutral real interest rates in these economies. The neutral real interest rate provides policymakers with a benchmark for the interest rate at which economic activity reaches its full potential and inflation will stabilize. The deviation of policy rates from this neutral rate determines whether monetary policy is accommodative or restrictive. This paper provides aggregate estimates of the neutral rate in 20 of these economies. EMDEs have seen a decline in the neutral rate of 4 percentage points, from over 6 percent in 2000 to closer to 2 percent at the end of 2019; advanced economies saw an above 2 percentage point decline over this period. The decline of neutral real interest rates in EMDEs can only partially be related to domestic drivers of desired savings and investment. The secular decline in the neutral rate of interest is limiting the ability of EMDEs to stimulate economies in the face of large shocks. The neutral real interest rate is unobservable and subject to a high degree of uncertainty, double the size of that for advanced economies. With such high uncertainty determining the stance of monetary policy in these economies is a challenge. |
| Keywords: | Macroeconomic Management,Financial Structures,Population&Development,Commodity Risk Management,Poverty Reduction Strategies |
| Date: | 2021–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9711&r= |
| By: | Felici, Marco; Kenny, Geoff; Friz, Roberta |
| Abstract: | We study interest rates transmission to savings at low and negative rates. Exploiting cohorts of consumers from a data-rich multi-country survey, we show how the strength of interest rate transmission to savings varies with the level of nominal interest rates. This response is positive when interest rates are high but declines steadily at lower levels. At very low levels, there is evidence that the savings response may even reverse sign. Such a “savings’ reversal” is consistent with the behavioural evidence on money illusion as well as with a negative signalling effect from policy announcements in a liquidity trap and may weaken the direct stimulatory effects from very low and negative rates. Consistent with this, the reversal appears to be causally related to central bank information shocks and concentrated among older consumers and consumers with lower educational attainment. JEL Classification: D12, D84, E21, E31, E52 |
| Keywords: | consumer survey, euro area, liquidity trap, nominal interest rates, savings |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222736&r= |
| By: | Ha,Jongrim; Kose,Ayhan; Ohnsorge,Franziska Lieselotte |
| Abstract: | This paper introduces a global database that contains inflation series: (i) for a wide range of inflation measures (headline, food, energy, and core consumer price inflation; producer price inflation; and gross domestic product deflator changes); (ii) at multiple frequencies (monthly, quarterly and annual) for an extended period (1970–2021); and (iii) for a large number (up to 196) of countries. As it doubles the number of observations over the next-largest publicly available sources, the database constitutes a comprehensive, single source for inflation series. The paper illustrates the potential use of the database with three applications. First, it studies the evolution of inflation since 1970 and document the broad-based disinflation around the world over the past half-century, with global consumer price inflation down from a peak of roughly 17 percent in 1974 to 2.5 percent in 2020. Second, it examines the behavior of inflation during global recessions. Global inflation fell sharply (on average by 0.9 percentage points) in the year to the trough of global recessions and continued to decline even as recoveries got underway. In 2020, inflation declined less, and more briefly, than in any of the previous four global recessions over the past 50 years. Third, the paper analyzes the role of common factors in explaining movements in different measures of inflation. While, across all inflation measures, inflation synchronization has risen since the early 2000s, it has been much higher for inflation measures that involve a larger share of tradable goods. |
| Keywords: | Inflation,Energy and Environment,Energy Demand,Energy and Mining,Macroeconomic Management,Financial Structures |
| Date: | 2021–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9737&r= |
| By: | Kim Nguyen (Reserve Bank of Australia) |
| Abstract: | I study how the use and structure of debt covenants affect real business activity and pass-through of monetary policy using a newly constructed dataset of corporate debt covenants in Australia. I find that exposure to debt covenants disciplines firms' investment and staff expenses even in the absence of covenant breaches. In addition, covenants with interest coverage limits appear to amplify the transmission of monetary policy shocks while other types of covenants appear to mitigate transmission. As such, the shift from interest coverage limits to other types of covenants that appears to have occurred since the late 2000s may have lowered the responsiveness of investment to monetary policy, and in turn accounted for some of the surprising weakness in non-mining investment over the past decade. |
| Keywords: | debt covenants; financing friction; investment; employment; monetary policy |
| JEL: | G1 E2 E5 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2022-05&r= |
| By: | Ndikumana,Léonce; Nkurunziza,Janvier D.; Sanchez Martin,Miguel Eduardo; Mulugeta,Samuel; Getachew Kelbore,Zerihun |
| Abstract: | This study empirically investigates the drivers of inflation in Ethiopia using monthly data fromJuly 1998 to September 2020. It explores short-run and long-run effects of domestic and external determinants ofinflation—including demand-side, supply-side, and structural factors—using the cointegration and vector error correctionmethodology. Four measures of inflation are considered: cereals, food, nonfood, and all items consumer price indexinflation. A key contribution to the existing literature is the investigation of the role of the fiscal sector inmodeling inflation, a topic that has been neglected in the existing studies on inflation in Ethiopia. The empiricalresults show that disequilibria in the monetary sector, grains sector, and food markets have long-run effects oninflation. In the short run, inflation is driven by structural factors (notably, cereal output gaps and importedinflation) as well as demand-side factors (notably, money growth and public sector borrowing). The results hold whenthe analysis is limited to the high growth period from 2005 onward, following the end of the International Monetary Fundprogram in the country. The evidence provides valuable insights in the context of ongoing macroeconomic policyreforms in Ethiopia. |
| Keywords: | Inflation,Financial Sector Policy,Natural Disasters,Food Security,Energy and Mining,Energy and Environment,Energy Demand |
| Date: | 2021–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9881&r= |
| By: | David Cerezo S\'anchez |
| Abstract: | Optimal simple rules for the monetary policy of the first stochastically dominant crypto-currency are derived in a Dynamic Stochastic General Equilibrium (DSGE) model, in order to provide optimal responses to changes in inflation, output, and other sources of uncertainty. The optimal monetary policy stochastically dominates all the previous crypto-currencies, thus the efficient portfolio is to go long on the stochastically dominant crypto-currency: a strategy-proof arbitrage featuring a higher Omega ratio with higher expected returns, inducing an investment-efficient Nash equilibrium over the crypto-market. Zero-knowledge proofs of the monetary policy are committed on the blockchain: an implementation is provided. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2210.06139&r= |
| By: | Klingebiel,Daniela M. H.,Herrero Montes,Carmen Mileva,Ruiz Gil,Marco Antonio,Seward,James |
| Abstract: | This paper uses a unique survey data set of 105 central banks to investigate whether investment policies for central bank foreign reserve portfolios are linked to the governance arrangements for reserve management. The paper evaluates whether a central bank's investment decision-making structure impacts how much risk institutions take in their reserve management operations and the level of diversity in their reserve portfolios. Additionally, it explores the implications of the broader governance environment on reserve management. The analysis yields four key findings. First, internal governance arrangements matter for foreign reserve portfolio investment policy; the empirical results indicate that reserve portfolios are more diversified in central banks in which the middle office directly reports to the board. Second, controlling for the level of reserves, the macroenvironment, and the broader governance environment, reserve portfolios are more diversified in central banks where the back, middle, and front offices are separated. Third, the regression analysis also reveals that central banks in countries where the Ministry of Finance has an obligation to cover negative equity have fewer eligible currencies and are therefore less diversified. Fourth, central banks where boards actively exercise portfolio oversight usually have portfolios with more risk and diversification. Portfolios with longer investment horizons, more currencies, and a broader set of asset classes have performed better historically while limiting downside risk. Given that the analysis controls the broader governance environment, the data indicate that any central bank can improve its internal governance regardless of the external governance environment. This paper contributes to the literature on central bank foreign reserves management and on understanding the importance of governance arrangements in investment policy. |
| Keywords: | Financial Structures,Financial Sector Policy,Macroeconomic Management,Public Sector Economics,Public Finance Decentralization and Poverty Reduction |
| Date: | 2021–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9763&r= |
| By: | Alberto Prati |
| Abstract: | In terms of well-being, how costly is inflation? To answer this question, empirical evaluations have typically studied average inflation rates at the national level, thus disregarding the role of inflation inequalities within a country. In this paper, we relax the assumptions that heterogeneous consumers face homogeneous inflation rates, and study the correlation between price changes and self-reported satisfaction with living standards. We use newly available data from France, and adopt two approaches. First, we focus on individually perceived inflation and use the internationally harmonized Opinion Price Index as a proxy for experienced inflation. Variations in perceived inflation help predict wellbeing differences among consumers, even when controlling for relevant socio-demographic factors, personality traits and common method variance. We estimate their marginal impact to be higher than equivalent variations in nominal income. Second, we compare groups of consumers over time, and find that changes in the price of a good disproportionately affect the relative well-being of those who consume it. The study shows that the well-being cost of the inflation crisis would be underestimated if looking at aggregate figures only. |
| Keywords: | inflation inequality, heterogeneous inflation, subjective well-being, standard of living, perceived inflation, opinion price index |
| Date: | 2022–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1870&r= |
| By: | Guillermo Santos (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | This paper investigates optimal fiscal and monetary policy in a New-Keynesian model with preferences over safe assets (POSA). Relative to a model with standard preferences, a Ramsey planner facing POSA uses inflation more actively to absorb the effects of fiscal and demand shocks despite inflation being costly. The optimal response of inflation to the shocks thus departs from the traditional prescription observed in standard New-keynesian models with sticky prices in which inflation volatility is near zero. Moreover, under POSA taxes are not as smooth as under standard preferences and are more frontloaded, an outcome that brings the model closer to optimal policy under flexible prices. With POSA, debt issuance depresses the liquidity premium, reducing revenues collected by the government and tightening the budget constraint. Therefore the planner is much less willing to issue debt in response to (say) a fiscal shock, which explains the excess tax volatility observed. These results do not dramatically change when private capital is introduced to the economy, the planner stills finds optimal to use inflation to absorb the shocks. Moreover in spite of the fact that debt issuance is lower private investment is still crowded out under POSA due to the higher distortionary taxes. Finally, the planner faced with POSA outperforms the New-Keynesian planner (with standard preferences) in terms of stabilizing the economy to a negative demand disturbance, but underperforms in terms of managing the government spending shock. The negative demand shock increases the demand for government debt and relaxes the tradeoff facing the planner. The opposite holds in the case of a spending shock. |
| Keywords: | optimal fiscal and monetary policy, bonds in the utility function, distortionary taxes, liquidity premium |
| JEL: | E31 E52 E62 H21 |
| Date: | 2022–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2022021&r= |
| By: | Stephen G. Hall (Leicester University, Bank of Greece, and Pretoria University); George S. Tavlas (Bank of Greece and the Hoover Institution, Stanford University); Yongli Wang (University of Birmingham) |
| Abstract: | We investigate the drivers of the recent inflation in three currency areas: the United States, the euro area, and the United Kingdom. To do so, we use a VAR set-up to examine the nature of the shocks that underpinned the recent inflation. We apply two methods to calculate shocks -- the standard Cholesky decomposition and a new method that captures more realistic shocks by solving the VAR backwards. We also use spatial modelling to investigate cross-country inflation spillovers. We find the inflationary shocks in the United States are transmitted to the euro area and the United Kingdom in a powerful and consistent way. The euro area transmits inflation to the other regions but to a lesser extent, while the inflation in the United Kingdom has little effect on the other two regions. |
| Keywords: | Inflation, VAR analysis, impulse responses, spatial spillovers |
| JEL: | C52 C53 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:22-13&r= |
| By: | Jorge-Sotelo, Enrique |
| Abstract: | This paper contributes to the literature on moral hazard, lending of last resort and the political origins of banking crises. Drawing on newly accessed quantitative and qualitative archival sources the paper documents how a bank - Banco de Cataluña - formed a coalition with the Dictatorship of Primo de Rivera (1923-30) in order to depart from the framework of "constructive ambiguity" that characterized central bank lending of last resort in Spain. As a result, the bank developed a uniquely risky portfolio and incurred in insider lending to internationally exposed firms at the onset of the Great Depression. The fall of the Dictatorship and democratic transition, the collapse of international trade, and global deflation during 1929-31 made fragilities emerge causing the bank to fail. |
| Keywords: | moral hazard,lender of last resort,Great Depression |
| JEL: | N24 E58 G01 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eabhps:2201&r= |
| By: | Bresser-Pereira, Luiz Carlos; Feijó, Carmem; Araújo, Eliane Cristina |
| Abstract: | This paper discusses the long-term determination of the exchange rate, given that it may remain depreciated or overvalued for some time. It defines the equilibrium exchange rate and the competitive exchange rate; the latter makes investment projects competitive internationally. Instead of starting from the PPP theory, it starts from the concept of the value of foreign money or the exchange rate around which the price, the exchange rate, revolves according to the supply and demand of foreign money. This, in turn, is influenced by three factors: the terms of trade, the current-account balance as a determinant of the net capital flows or inflows, and the interest rate differential. This paper criticizes the “fundamental equilibrium” concept and develops two econometric tests. The first checks whether the four determinant variables used in the model are relevant. The second verifies whether this model is a good predictor of the exchange rate throughout time. |
| Date: | 2022–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:558&r= |
| By: | Samano Penaloza,Agustin |
| Abstract: | This paper proposes a novel theory of reserve accumulation that emphasizes the role of anindependent central bank. Motivated by a positive correlation between reserve accumulation and central bankindependence in Latin America, the paper develops a quantitative sovereign default model with an independentcentral bank that can accumulate a risk-free foreign asset. The findings show that if the central bank is more patientthan the government and as patient as households are, in equilibrium, the government issues more debt than what issocially optimal, and the central bank accumulates reserves to undo government over-borrowing. A key insight is that thegovernment can issue more debt for any level of reserves but chooses not to because doing so would increase sovereignspreads, making it more costly to borrow. Quantitatively, the analysis finds that the central bank independencechannel accounts for 75 percent of the average reserve levels observed in Mexico from 1994 to 2017. Finally, thepaper shows that accumulating reserves improves social welfare. Welfare gains come from reducing the costs offront-loading public spending. |
| Keywords: | Financial Structures,Inflation,Services & Transfers to Poor,Economic Assistance,Disability,Access of Poor to Social Services,International Trade and Trade Rules,Public Financial Management,Public Sector Economics,Public Finance Decentralization and Poverty Reduction |
| Date: | 2021–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9832&r= |
| By: | Graf Von Luckner,Clemens Mathis Henrik,Reinhart,Carmen M.,Rogoff,Kenneth S. |
| Abstract: | This paper employs high frequency transactions data on the world’s oldest and most extensive centralized peer-to-peer Bitcoin market, which enables trade in the currencies of more than 135 countries. It presents an algorithm that allows, with high probability, the detection of “crypto vehicle transactions” in which crypto currency is used to move capital across borders or facilitate domestic transactions. In contrast to previous work which has used “on-chain” data, this paper’s approach enables one to investigate parts of the vastly larger pool of “off-chain” transactions. Finding that, as a conservative lower bound, over 7 percent of the 45 million trades on the exchange we explore represent crypto vehicle transactions in which Bitcoin is used to make payments in fiat currency. Roughly 20 percent of these represent international capital flight/flows/remittances. Although this work cannot be used to put a price on cryptocurrencies, it provides the first systematic quantitative evidence that the transactional use of cryptocurrencies constitutes a fundamental component of their value, at least under the current regulatory regime. |
| Keywords: | International Trade and Trade Rules,Investment and Investment Climate,Law Enforcement Systems |
| Date: | 2021–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9794&r= |
| By: | Ryo Kato (Faculty of Economics, Asia University); Junior Maih (Norges Bank); Shin-Ichi Nishiyama (Graduate School of Economics, Kobe University) |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:2212&r= |
| By: | Sam Njinyah (Manchester Metropolitan University, UK); Simplice A. Asongu (Yaoundé, Cameroon); Sally Jones (Manchester Metropolitan University, UK) |
| Abstract: | Africa is becoming the fastest-growing continent despite significant challenges to accessing finance and the use of technology. This research aims to examine the direct effect of mobile money adoption on firm performance and its indirect effect by examining how it moderates the effect of access to finance on firm performance. Quantitative data were obtained from the World Bank Enterprise Survey for Cameroon, Ivory Coast and Zimbabwe. A series of hierarchical regression analyses were done to test the hypotheses. The main findings show a negative significant relationship between mobile money adoption and firm performance while access to finance had a positive relationship. The moderation effect though positive was not significant. Research examining the effect of mobile money adoption in Africa on firm performance is limited and existing studies have focused on the determinants of mobile money usage. |
| Keywords: | Mobile money, Access to Finance, Firm Performance, Resource-based view, Sub Saharan Africa |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/075&r= |
| By: | Bozena Gulija; Costanza Russo (Queen Mary University of London); Dalvinder Singh (University of Warwick) |
| Abstract: | The COVID-19 pandemic has caused an unprecedented degree of public and private intervention to avert a social, economic and financial crisis. EU member states, and especially participating member states of the European Banking Union (EBU), introduced a broad set of measures, including public guarantees, moratoria and amendments to the European Commission State Aid framework, to contain the negative effects of the pandemic on the economy. The EU suspended its fiscal rules and the European Central Bank increased its monetary operations. The paper uses an empirical analysis to review the impact of public support on the Single Supervisory Mechanism (SSM) banks and the acutely exposed participating EBU member states because of their significant increase in government debt levels. We argue that the containment of the crisis creates a major uncertainty, namely a possible insolvency lag once the benefits of the public support subside and insolvencies start to materialise. This uncertainty is associated with non-financial corporates, the safety and soundness of the SSM significant banks and sovereign debt sustainability, forming a new 'doom loop'. We suggest the design of a 'transition phase' as a mechanism of accountability to improve the understanding of those uncertainties to ensure financial stability. |
| Keywords: | deposit insurance, bank resolution |
| JEL: | G21 G33 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:awl:spopap:2&r= |
| By: | Corradin, Stefano; Sundaresan, Suresh |
| Abstract: | We investigate banks' benefits and costs of having access to LOLR. Integrating novel data sets we estimate the borrowing capacities of euro area banks at the ECB. Controlling for ratings, we find that banks with more fragile funding are likely to borrow more from the ECB during the great financial and euro area sovereign debt crises. We develop a dynamic model of a bank and calibrate it to our empirical estimates. A bank with access to LOLR has higher equity value and makes larger investments in new loans, but it is more leveraged, pays more dividends and issues less equity. JEL Classification: G2, E5, E58 |
| Keywords: | borrowing capacity, collateral, haircut, liquidity, LOLR |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222738&r= |
| By: | Xinyu Li; Zihan Tang |
| Abstract: | Based on global tweets from 2017 to 2022, we implement traditional machine learning and deep learning methods to build high-frequency measures of the public's sentiment index towards inflation and analyze the correlation with other online data sources such as google trend and market-oriented inflation index. First, we test out several machine learning approaches using manually labelled tri-grams and finally choose Bert model for our research. Second, we calculate inflation sentiment index through sentiment score of the tweets applying Bert model and analyse the regional and pre/post covid pattern. Lastly, we take other online data sources of inflation into consideration and prove that twitter-based inflation sentiment analysis method has an outstanding capability to predict inflation. The results suggest that Twitter combined with deep learning methods can be a novel and timely method to utilise existing abundant data sources on inflation expectations and provide daily and weekly indicators of consumers' perception on inflation. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2209.14737&r= |
| By: | Mariam Camarero (University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón, Spain.); Silviano Sergi Moliner (University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón, Spain.); Salvador Cecilio Tamarit (University of València and INTECO, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, Spain.) |
| Abstract: | This paper analyzes the potential determinants of the US stock of outward FDI (OFDI). As our research question is whether the introduction of the euro has changed the pattern of US OFDI, we consider a large group of host countries from different continents, zooming in on the European case, where we analyze different country groupings for the European Union and the Euro Area. With this aim, we estimate a gravity equation using the Pseudo Poisson Maximum Likelihood (PPML) estimator. Furthermore, we use the Bayesian Modelling Averaging (BMA) analysis results in Camarero et al. (2021) as a benchmark for the initial specification. We find that US OFDI is explained by horizontal and vertical FDI motives in all country groups. As for the euro effect, we show that the single currency has prominently promoted US OFDI to the EA members with effects ranging between 10% and 20%. However, while in the core Euro Area, the euro has favored both HFDI and intra-industry VFDI strategies, in the periphery has mainly stimulated pure VFDI. |
| Keywords: | FDI determinants; US; European Union; BMA; PPML |
| JEL: | F21 F23 C11 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:2209&r= |
| By: | Andree,Bo Pieter Johannes |
| Abstract: | The traditional consumer price index is often produced at an aggregate level, using data fromfew, highly urbanized, areas. As such, it poorly describes price trends in rural or poverty-stricken areas, where largepopulations may reside in fragile situations. Traditional price data collection also follows a deliberate sampling andmeasurement process that is not well suited for monitoring during crisis situations, when price stability maydeteriorate rapidly. To gain real-time insights beyond what can be formally measured by traditional methods, this paperdevelops a machine-learning approach for imputation of ongoing subnational price surveys. The aim is to monitorinflation at the market level, relying only on incomplete and intermittent survey data. The capabilities arehighlighted using World Food Programme surveys in 25 fragile and conflict-affected countries where real-time monthly foodprice data are not publicly available from official sources. The results are made available as a data set that coversmore than 1200 markets and 43 food types. The local statistics provide a new granular view on importantinflation events, including the World Food Price Crisis of 2007–08 and the surge in global inflation following the 2020pandemic. The paper finds that imputations often achieve accuracy similar to direct measurement of prices. Theestimates may provide new opportunities to investigate local price dynamics in markets where prices are sensitive tolocalized shocks and traditional data are not available. |
| Keywords: | Inflation,Nutrition,Food Security,Inequality,International Trade and Trade Rules |
| Date: | 2021–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9886&r= |
| By: | Ozili, Peterson K |
| Abstract: | This paper presents a discussion of decentralized finance in Africa. It presents some statistics and data on decentralized finance in Africa. Thereafter, the potential benefits, challenges and regulatory issues associated with decentralized finance in Africa are discussed. Recently, there has been an increase in the use of cryptocurrency, decentralized finance applications (dApps) and decentralized financial services (DeFi) in several countries. These innovations facilitate the delivery of financial services using smart contracts. Decentralized finance (DeFi) encompasses all financial services that are built on public blockchains, based on open protocols and removes intermediaries from the financial intermediation process. There is significant cryptocurrency activity in Africa while decentralized finance (DeFi) is relatively new and unpopular in the African continent. There is low interest in decentralized finance in Africa. The benefit of DeFi to African countries include increased liquidity for small and medium scale enterprises (SMEs), new opportunities to raise additional capital to fund capital-intensive activities, it will usher in an era of smart contracts that are negotiated bilaterally without needing an intermediary, it will encourage peer-to-peer trade between economic agents in several African countries, it will enhance the efficiency of the Pan-African Payment Settlement System (PAPSS), and encourage more trade between individuals and corporations under the African Continental Free Trade Agreement (AfCFTA), amongst others. |
| Keywords: | Decentralized finance, Cryptocurrencies, DeFi, dApps, AfCFTA, Bitcoin, blockchain, central bank digital currency crypto technologies, Africa, smart contracts. |
| JEL: | G21 G23 O31 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114710&r= |