nep-mon New Economics Papers
on Monetary Economics
Issue of 2022‒11‒14
35 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Asymmetric Macroeconomic Effects of QE and Excess Reserves in a Monetary Union By Neyer, Ulrike; Stempel, Daniel; Horst, Maximilian
  2. How to Limit the Spillover from the 2021 Inflation Surge to Inflation Expectations? By Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
  3. The role of central bank communication in inflation-targeting Eastern European emerging economies By Valerio Astuti; Alessio Ciarlone; Alberto Coco
  4. Assessing Australian Monetary Policy in the Twenty-First Century By Gross, Isaac; Leigh, Andrew
  5. CBDC and cash in the euro area: Crowding out or co-circulation? By Rösl, Gerhard; Seitz, Franz
  6. Central Bank Mandates and Monetary Policy Stances: through the Lens of Federal Reserve Speeches By Bertsch, Christoph; Hull, Isaiah; Lumsdaine, Robin L.; Zhang, Xin
  7. The Curious Case of the Rise in Deflation Expectations By Olivier Armantier; Gizem Koşar; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
  8. The Role of Expectations for Currency Crisis Dynamics - The Case of the Turkish Lira By Beckmann, Joscha; Czudaj, Robert L.
  9. Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs : Evidence from Malawian Imports from the EU By Montfaucon,Angella Faith Lapukeni
  10. Natural Disasters and Inflation in the Euro Area By Beirne, John; Dafermos, Yannis; Kriwoluzky, Alexander; Renzhi, Nuobu; Volz, Ulrich; Wittich, Jana
  11. Inflation Expectations and Corporate Borrowing Decisions: New Causal Evidence By Ropele, Tiziano; Gorodnichenko, Yuriy; Coibion, Olivier
  12. Fiscal and Macroprudential Policies in a Monetary Union By José E. Boscá; Javier Ferri; Margarita Rubio
  13. Signaling virtue or vulnerability? The changing impact of exchange rate regimes on government bond yields By Barta, Zsófia; Baccaro, Lucio; Johnston, Alison
  14. FX Resilience around the World: Fighting Volatile Cross-Border Capital Flows By Louisa Chen; Estelle Xue Liu; Zijun Liu
  15. Why Aging Induces Deflation and Secular Stagnation By R. Anton Braun; Daisuke Ikeda
  16. Private bank deposits and macro/fiscal risk in the euro-area By Arghyrou, Michael G; Gadea, Maria-Dolores; Kontonikas, Alexandros
  17. The Curious Incidence of Monetary Policy Across the Income Distribution By Broer, Tobias; Kramer, John; Mitman, Kurt
  18. Macroeconomic Expectations and Credit Card Spending By Galashin,Mikhail; Kanz,Martin; Perez Truglia,Ricardo
  19. Understanding the Strength of the Dollar By Zhengyang Jiang; Robert J. Richmond; Tony Zhang
  20. Talking about growth, the discourse of the European Central Bank, 1997-2021 By Eric Dehay
  21. Who is Afraid of Eurobonds? By Francesco Bianchi; Leonardo Melosi; Anna Rogantini Picco
  22. Term premium estimation for South Africa By Steenkamp, Daan; Erasmus, Ruan
  23. Geopolitics and the U.S. Dollar's Future as a Reserve Currency By Colin Weiss
  24. Perceived Monetary Policy Uncertainty By Beckmann, Joscha; Czudaj, Robert L.
  25. Macroeconomic effects of growth-enhancing measures in the euro area By Alessandro Cantelmo; Alessandro Notarpietro; Massimiliano Pisani
  26. Commodity Price Effects on Currencies By Yin-Wong Cheung; Wenhao Wang
  27. A structural analysis of foreign exchange markets in sub-Saharan Africa By Kaltenbrunner, Annina; Perez Ruiz, Daniel; Okot, Anjelo
  28. Determinants of the exchange rate, its volatility and currency crash risk in Africa's low and lower middle-income countries By Okot, Anjelo; Kaltenbrunner, Annina; Perez Ruiz, Daniel
  29. Does Central Bank Independence Increase Inequality? By Aklin,Michael; Kern,Andreas; Negre,Mario
  30. Inflation and distribution during the post-COVID recovery: a Kaleckian approach By Mark Setterfield
  31. Thick Market Externality and Concentration of `Money' By Starr, Ross; Spini, Pietro Emilio
  32. Research of an optimization model for servicing a network of ATMs and information payment terminals By G. A. Nigmatulin; O. B. Chaganova
  33. Introducing Cashless Transaction Index based on the Effective Medium Approximation By Mikrajuddin Abdullah
  34. Forecasting Inflation: The Use of Dynamic Factor Analysis and Nonlinear Combinations By Stephen G. Hall; George S. Tavlas; Yongli Wang
  35. A brief history of payment netting and settlement By Bindseil, Ulrich; Pantelopoulos, George

  1. By: Neyer, Ulrike; Stempel, Daniel; Horst, Maximilian
    JEL: E51 E52 E58 F41 F45
    Date: 2022
  2. By: Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
    JEL: E31 E52 E58 D84
    Date: 2022
  3. By: Valerio Astuti (Banca d'Italia); Alessio Ciarlone (Banca d'Italia); Alberto Coco (Banca d'Italia)
    Abstract: In this paper, we analyze whether central bank communication can be an additional tool to provide guidance on monetary policy, drive private agents’ inflation expectations and financial asset prices in the main countries of Central and Eastern Europe. By applying natural language processing techniques to monetary policy statements and minutes, we first derive a series of salient topics on which central bank communications focused over the last two decades, and then develop indices of tone to gauge their respective degrees of hawkishness (dovishness) about the economic outlook. By using these indices in an econometric set-up, we find that a more hawkish (dovish) tone – reflecting a more positive (negative) assessment of the economic outlook – anticipates a more restrictive (accommodative) monetary policy decision, raises (lowers) short-term inflation expectations of private sector agents, increases (reduces) market interest rates across different maturities, and drives share prices down (up). Overall, our analysis suggests that communication may be a complementary and effective monetary policy tool available to central banks in emerging economies.
    Keywords: central banks, communication, natural language processing, Taylor rule, inflation expectations, financial markets, CEE-3
    JEL: C22 C25 C45 E44 E52 E58
    Date: 2022–10
  4. By: Gross, Isaac (Monash University); Leigh, Andrew (Australian National University)
    Abstract: Using the Reserve Bank of Australia's MARTIN model we compare actual monetary policy decisions to a counterfactual in which the cash rate is set according to an optimal simple rule. We find that monetary policy played a crucial role in avoiding a potential recession in 2001 and mitigating the downturn in 2008-2009. By contrast we find that the cash rate was too high during 2016-2019, keeping inflation below the Reserve Bank's target band. Optimal monetary policy in 2016-2019 would have involved a substantially lower cash rate and would have produced significantly better employment outcomes.
    Keywords: optimal monetary policy, unemployment, output gap, inflation
    JEL: E47 E52 E58
    Date: 2022–09
  5. By: Rösl, Gerhard; Seitz, Franz
    Abstract: Cash usage at the point-of-sale decreased perceptibly in the past years. This is mainly due to the ongoing trend towards digitalization, but there are also indications that consumers were somewhat pushed into cashless payments by government regulations and supply-side restrictions by commercial banks. Nonetheless, overall demand for euro cash remained strong and even increased relative to GDP since the financial crisis in 2008. In this process, however, we observe a supply-driven shift towards lower banknote denominations. Central banks all over the world are intensively thinking about the potential issue of a Central Bank Digital Currency as a substitute or complement to cash. Although the characteristics of a possible digital euro have become more perceptible, its fundamental design properties remain unknown. We propose a double pre-paid scheme combining central elements of TARGET Instant Payment Settlement and electronic money features enabling offline and online instant payments. The issuance of a digital euro would be neutral to total money supply as banks act only as intermediaries. Since anonymity is categorically discarded by the ECB and as cash has some special advantages from a consumer perspective, the digital euro will rather co-circulate with cash than replace it in transactions.
    Keywords: Cash,banknotes,money,CBDC
    JEL: E41 E51 E58
    Date: 2022
  6. By: Bertsch, Christoph (Research Department, Central Bank of Sweden); Hull, Isaiah (Finance Department, BI Norwegian Business School); Lumsdaine, Robin L. (Kogod School of Business, American University; Erasmus University Rotterdam; National Bureau of Economic Research (NBER); Tinbergen Institute; Center for Financial Stability); Zhang, Xin (BIS Innovation Hub Nordic Centre)
    Abstract: When does the Federal Reserve deviate from its dual mandate of pursuing the economic goals of maximum employment and price stability and what are the consequences? We assemble the most comprehensive collection of Federal Reserve speeches to-date and apply state-of-the-art natural language processing methods to extract a variety of textual features from each paragraph of each speech. We find that the periodic emergence of non-dual mandate related discussions is an important determinant of time-variations in the historical conduct of monetary policy with implications for asset returns. The period from mid-1996 to late 2010 stands out as the time with the narrowest focus on balancing the dual mandate. Prior to the 1980s there was a outsized attention to employment and output growth considerations, while non dual-mandate discussions centered around financial stability considerations emerged after the Great Financial Crisis. Forward-looking financial stability concerns are a particularly important driver of a less accommodative monetary policy stance when Fed officials link these concerns to monetary policy, rather than changes in banking regulation. Conversely, discussions about current financial crises and monetary policy in the context of inflation-employment themes are associated with a more accommodative policy stance.
    Keywords: Natural Language Processing; Machine Learning; Central Bank Communication; Financial Stability; Zero Shot Classification; Extractive Question Answering; Semantic Textual Similarity
    JEL: C63 D84 E32 E70
    Date: 2022–10–01
  7. By: Olivier Armantier; Gizem Koşar; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
    Abstract: We study the behavior of U.S. consumers’ inflation expectations during the high inflation period of 2021-22 using data from the Survey of Consumer Expectations. Short- and, to a lesser extent, mediumterm inflation expectations rose as inflation surged in 2021. Disagreement and uncertainty about future inflation increased significantly. Then, in 2022, even as inflation continued to climb, medium- and longerterm inflation expectations unexpectedly fell and medium- and longer-term deflation expectations increased. We find that respondents with deflation expectations tend to expect prices to mean revert and are more optimistic about the economic outlook.
    Keywords: inflation; deflation; expectations; consumer surveys
    JEL: D12 D84 E31 E52
    Date: 2022–10–01
  8. By: Beckmann, Joscha; Czudaj, Robert L.
    Abstract: This paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures surrounding GDP growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations regarding monetary policy have changed throughout the sample period. In line with a gradual adjustment of expectations professionals have accounted for the violation of the Taylor rule.
    Keywords: Disagreement, Expectations, Foreign exchange, Survey data, Taylor rule, Turkish lira, Uncertainty
    JEL: F31 F41
    Date: 2022–10–13
  9. By: Montfaucon,Angella Faith Lapukeni
    Abstract: The response of import prices to exchange rates can be used to predict the effect of changes in trade policy. The hypothesis of symmetric pass-through of tariffs and exchange rates asserts that the effect of tariffs and exchange rates on prices are identical. This paper examines whether the symmetry hypothesis holds in the context of invoicing currency, by investigating the role of the euro and the U.S dollar currencies. The paper uses transaction-level data of Malawian imports from the European Union (EU) over a 12-year period, separating imports from the Economic and Monetary Union (EMU) members and non-members and across sectors. The findings show that the dollar has the highest invoicing share, and the pass-through rate of exchange rate and tariff shocks on to Malawian consumers is high. Symmetry holds when bilateral exchange rates are used, but when the invoicing currency is considered there are deviations from symmetry. This result implies that to predict the effects of trade policy based on import prices' responses to the exchange rate, bilateral exchange rates are not suitable for capturing exchange rate and tariff pass-through. The variations in the results across EMU and non-EMU, currencies, and industries demonstrates that that empirical evidence is needed in each case to understand the extent of pass-through, which is crucial for import-dependent developing countries such as Malawi.
    Keywords: International Trade and Trade Rules,Transport Services,Trade Policy,Rules of Origin,Trade and Multilateral Issues,Trade and Services
    Date: 2021–03–11
  10. By: Beirne, John; Dafermos, Yannis; Kriwoluzky, Alexander; Renzhi, Nuobu; Volz, Ulrich; Wittich, Jana
    JEL: E31 E52 Q54
    Date: 2022
  11. By: Ropele, Tiziano (Bank of Italy); Gorodnichenko, Yuriy (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin)
    Abstract: We match survey data of Italian firms that includes a repeated experiment in which information about inflation is randomly provided to firms over time with detailed credit data that covers the borrowing decisions of firms. This allows us to study how exogenous variation in inflation expectations causally affects the borrowing decisions of Italian firms. We document a number of new results. Firms with exogenously higher inflation expectations end up paying higher interest rates on average but do not change the overall demand of loans. Instead, we find a significant rebalancing of firms' borrowing decisions away from lower-interest long-term loans and toward higher-interest short-term loans. In anticipation of rising future interest rates linked to higher expected inflation, firms also take on new long-term loans to pay down existing loans, thereby locking in interest rate savings. Firms that are relatively more knowledgeable about financial tools engage in the latter particularly strongly.
    Keywords: inflation expectations, surveys, inattention
    JEL: E02 E03
    Date: 2022–10
  12. By: José E. Boscá; Javier Ferri; Margarita Rubio
    Abstract: In the European Monetary Union (EMU), monetary policy is decided by the European Central Bank (ECB). This can create some imbalances that can potentially be corrected by national policies. So far, Öscal policy was the natural candidate to adjust those imbalances. Nevertheless, after the global Önancial crisis (GFC), a new policy candidate has emerged, namely national macroprudential policies, with the mission of reducing Önancial risks. This issue gives rise to an interesting research question: how do macroprudential and Öscal policies interact? By a§ecting real interest rates and the level of activity, a discretionary macroprudential policy alters the evolution of public debt and can impose a Öscal cost when the government is forced to increase tax rates to stabilize the public debt-to-GDP ratio. In a monetary union, a domestic macroprudential shock creates substantial crossborder Önancial e§ects and also ináuences the foreign country Öscal stance. Moreover, a discretionary government spending policy a§ects housing prices, so the strenght with which macroprudential policy reacts to a change in the price of houses has an impact on the Öscal multiplier.
    Date: 2022–10
  13. By: Barta, Zsófia; Baccaro, Lucio; Johnston, Alison
    Abstract: Do exchange rate regimes affect the conditions under which developed countries borrow? This paper argues that they do, but their impact on yields depends on the prevailing macroeconomic context. When investors regard inflation as the most relevant risk to bond holdings, monetary union has a distinct advantage over floating and fixed exchange rates because of its credible in-built mechanism to control inflation. However, once default is seen as the most relevant risk, exchange rate rigidity becomes a liability due to its constraining effect on governments' ability to respond to adverse shocks. We test our argument with a moving window panel analysis for twenty-three OECD countries from 1980 to 2017. We find that before the late 2000s, inflation was penalized under floating and (to a lesser extent) fixed exchange rate regimes, but not in countries in monetary union. Since the 2010s, inflation carries no penalty under any exchange rate regime. Variables linked to default risk (debt and entitlement spending) did not affect yields under any exchange rate arrangements until the mid-2000s. Afterwards, countries in monetary union (and to a lesser extent in fixed exchange rate regimes) were significantly penalized for public debt and entitlement spending, whereas countries with floating regimes were not. Our results speak to the literatures on governments' institutional commitments and "room to move.
    Keywords: bond yields,euro,exchange rate regimes,financial markets,international political economy,Anleiherenditen,Euro,Finanzmärkte,internationale politische Ökonomie,Wechselkurssysteme
    Date: 2022
  14. By: Louisa Chen; Estelle Xue Liu; Zijun Liu
    Abstract: We show that capital flow (CF) volatility exerts an adverse effect on exchange rate (FX) volatility, regardless of whether capital controls have been put in place. However, this effect can be significantly moderated by certain macroeconomic fundamentals that reflect trade openness, foreign assets holdings, monetary policy easing, fiscal sustainability, and financial development. Passing the threshold levels of these macroeconomic fundamentals, the adverse effect of CF volatility may be negligible. We further construct an intuitive FX resilience measure, which provides an assessment of the strength of a country's exchange rates.
    Date: 2022–10
  15. By: R. Anton Braun (Federal Reserve Bank of Atlanta (E-mail:; Daisuke Ikeda (Director, Financial System and Bank Examination Department, Bank of Japan (E-mail:
    Abstract: We provide a quantitative theory of deflation and secular stagnation. In our lifecycle framework an aging population puts persistent downward pressure on the price level, real interest rates, and output. A novel feature of our theory is that it also recognizes the reactions of government policy. The central bank responds to falling prices by reducing its policy nominal interest rate and the fiscal authority responds by allowing the public debt-GDP ratio to rise.
    Keywords: Aging, Deflation, Lifecycle, Monetary policy, Portfolio choice, Secular stagnation, Tobin effect
    JEL: E52 E62 G51 D15
    Date: 2022–10
  16. By: Arghyrou, Michael G; Gadea, Maria-Dolores; Kontonikas, Alexandros
    Abstract: We use a panel of ten euro area member states to examine the link between macro/fiscal risk and private bank deposits relative to Germany. Our main findings are summarised as follows: First, the relationship between relative deposits and macro/fiscal risk factors is not stable over time. Second, the significant time variation characterizing this relationship is driven by aggregate EMU-wide macro/fiscal risk conditions. Third, relative deposits in periphery EMU countries are generally more responsive to macro/fiscal risk. Fourth, the ECB’s unconventional monetary policy moderated the effect of the global financial and European debt crises on the relationship between relative deposits and macro/fiscal risk. Our empirical findings can inform the ongoing policy debate regarding the completion of the European Banking Union.
    Keywords: Private bank deposits, macro/fiscal risk, euro area, TVP panel
    Date: 2022–10–19
  17. By: Broer, Tobias (Paris School of Economics, IIES, Stockholm University, and CEPR); Kramer, John (IIES, Stockholm University); Mitman, Kurt (IIES, Stockholm University, CEPR and IZA)
    Abstract: We use high-frequency administrative data from Germany to study the effects of monetary policy on income and employment across the earnings distribution. Earnings growth at the bottom of the distribution is substantially more elastic to policy shocks. This unequal incidence is driven by differences in the response of employment risk across the distribution: job loss is more countercyclical for lower-earnings households. Viewed through the lens of a standard incomplete-markets model, the heterogeneous incidence substantially amplifies the equilibrium response of aggregate consumption to shocks.
    Keywords: Inequality; Monetary Policy; Heterogeneous agents
    JEL: D31 E52 J64
    Date: 2022–08–01
  18. By: Galashin,Mikhail; Kanz,Martin; Perez Truglia,Ricardo
    Abstract: How do macroeconomic expectations affect consumer decisions? This paper reports results from a natural field experiment with 2,872 credit card customers from a large commercial bank to answer this question. Participants of the experiment first completed as survey that measured consumer expectations about future inflation and the nominal exchange rate. This survey was combined with an information-provision experiment that generated exogenous variation in respondents’ macroeconomic expectations. The survey and experimental data were then merged with detailed administrative data on participants’ credit card transactions and balances. The experiment was designed to test three standard predictions from models of intertemporal consumption choice: inflation expectations should affect spending on durables; exchange rate expectations should affect spending on tradables; and, holding constant the nominal interest rate, inflation expectations should affect borrowing. The analysis finds that the information provided to participants strongly affects subjective expectations. However, no significant effects are found on actual consumer behavior (as measured in administrative data) or self-reported consumption plans (as measured in survey data). The preferred interpretation is that consumers are not sophisticated enough to factor inflation and exchange rate expectations into their consumption decisions. The absence of a link between consumer expectations and behavior has potentially important implications for macroeconomic policies such as forward guidance.
    Keywords: Inflation,Financial Sector Policy,Consumption,Fiscal&Monetary Policy,Educational Sciences,Financial Structures
    Date: 2021–01–25
  19. By: Zhengyang Jiang; Robert J. Richmond; Tony Zhang
    Abstract: We link the sustained appreciation of the U.S. dollar from 2011 to 2019 to international capital flows driven by primitive economic factors. We show that increases in foreign investors’ net savings, increases in U.S. monetary policy rates relative to the rest of the world, and shifts in investor demand for U.S. financial assets contributed approximately equally to the dollar’s appreciation. We then quantify the impact of potential future demand shifts for U.S. assets on the value of the dollar.
    JEL: F31 G15
    Date: 2022–10
  20. By: Eric Dehay (RIME-Lab - Recherche Interdisciplinaire en Management et Économie Lab - ULR 7396 - UA - Université d'Artois - Université de Lille)
    Abstract: The text proposes an analysis of the way the European Central Bank (ECB) considers the notion of economic growth or its limits and how the question of envi-ronmental risk has become an issue for it. For this purpose, an analysis of the speeches of the members of its board is carried out over the period 1997-2021. An automated statistical analysis of the corpus reveals the standard approach to growth adopted by the ECB. This is followed by a more qualitative reading of the discourse, which shows that the notions of sustainability and the climate crisis are becoming increasingly important in the rhetoric of the ECB, without leading to a radical revision of the way growth is conceived or to a questioning of its limits. In order to expand its discourse and action in the climate field, the ECB is rather pro-ceeding by superimposition, adding new ideas rather than replacing its initial paradigm. In doing so, it protects the legitimacy of its mandate and its epistemic credibility.
    Keywords: E58,textual analysis,growth,climate change,European central bank (ECB)
    Date: 2022
  21. By: Francesco Bianchi; Leonardo Melosi; Anna Rogantini Picco
    Abstract: The growing asymmetry in the size of fiscal imbalances poses a serious challenge to the macroeconomic stability of the Euro Area (EA). We show that following a contractionary shock, the current monetary and fiscal framework weakens economic growth even in low-debt countries because of the zero lower bound (ZLB) constraint. At the same time, the current framework also exposes the EA to the risk of fiscal stagflation if one country were to refuse to implement the necessary fiscal consolidations. We study a new framework that allows EA policymakers to separate the need for short-run macroeconomic stabilization from the issue of long-run fiscal sustainability. Following a contractionary shock, the central bank tolerates the increase in inflation needed to stabilize the amount of Eurobonds issued in response to a large EA recession. National governments remain responsible to back their country-level debt by fiscal adjustments. The policy acts as an automatic stabilizer that benefits both high-debt and low-debt countries, generating a moderate increase in inflation that mitigates the recession and allows the central bank to move away from the ZLB. At the same time, the proposed policy lowers the risk of fiscal stagflation because it endows EA countries with effective stabilization policies.
    Keywords: Monetary and Fiscal Policy Coordination; Monetary Union; Eurobonds; Zero Lower Bound; Government Debt
    JEL: E50 E62 E30
    Date: 2022–10–03
  22. By: Steenkamp, Daan; Erasmus, Ruan
    Abstract: This white paper decomposes sovereign yields into expectations of future average short term rates and a term premium. We estimate that the term premium in South African sovereign bonds is lower than after the onset of the COVID pandemic, but still meaningfully higher than its historical average. Codera uses these estimates to extract market expectations of monetary policy and signals relating to the inflation and economic growth outlook, as well as produce estimates of market perceptions of liquidity premia and sovereign credit risk.
    Keywords: term premium
    JEL: E43 G12
    Date: 2022–10–07
  23. By: Colin Weiss
    Abstract: I survey the role of geopolitics and sanctions risk in shaping the U.S. dollar's status as the primary currency used for international reserves. Without changes in the economic incentives for holding FX reserves in U.S. dollar assets, an increased threat of sanctions is unlikely to drastically reduce the dollar share of FX reserves. Currently, around three-quarters of foreign government holdings of safe U.S. assets are by countries with some military tie to the U.S. Even a reduced reliance on the U.S. dollar for trade invoicing and debt denomination by a large bloc of countries less geopolitically aligned with the U.S. would be unlikely to end U.S. dollar dominance.
    Keywords: Foreign Exchange Reserves; Sanctions; Security Alliances
    JEL: F53 F51 F31
    Date: 2022–10
  24. By: Beckmann, Joscha; Czudaj, Robert L.
    Abstract: This paper examines whether media attention affects the macroeconomic effects of monetary policy uncertainty. We combine survey data from Consensus Economics and data on media attention from MarketPsych to distinguish between uncertainty and perceived uncertainty among the public. We assess the corresponding nonlinear effects on stock returns, the growth of industrial production, and inflation. Our results confirm that monetary policy uncertainty tends to have negative effects on production growth and stock returns. In particular for industrial production, such effects tend to be stronger in case of higher media coverage which acts as a propagation mechanism.
    Keywords: Expectations, Media, Monetary policy, Survey data, Uncertainty
    JEL: E43 E47 E52
    Date: 2022–10–13
  25. By: Alessandro Cantelmo (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: We evaluate the short- and long-term effects of different growth-enhancing policy measures implemented in the euro area by simulating a calibrated New Keynesian model featuring endogenous growth via the private sector's R&D accumulation. We find that higher public investment in infrastructures, pro-competition reforms in the product market, and subsidies to R&D have a positive effect on long-term growth and raise the natural rate of interest. In the short term, these measures can have mildly negative effects on inflation through their positive effect on aggregate supply.
    Keywords: endogenous growth, R&D spending, new keynesian model, monetary policy, euro area
    JEL: E30 E52 O30 O42
    Date: 2022–10
  26. By: Yin-Wong Cheung; Wenhao Wang
    Abstract: Using quarterly data on four commodity exporting countries, we study the explanatory power of real commodity prices for predicting real effective exchange rates, with special attention to the separate roles of different sectoral commodity prices during alternative time periods. We find that the commodity price effect is non-uniform across countries and commodity sectors, and moreover varies over time. The use of fixed weight price indexes, or nominal exchange rates and commodity prices, also yields heterogeneous commodity price effects. Further, the pattern of commodity price effects is influenced by the presence of macroeconomic conditions, the effects of crises, and the exchange rates of top trading partners. These empirical results highlight the challenges of explaining a wide range of currency behaviors across different time periods with a single commodity-price-based exchange rate model. These findings also complicate the tasks facing policymakers who assume stable commodity price effects.
    Keywords: commodity currencies, sectoral commodity prices, The US Dollar Effect, The Global Financial Crisis, macro variables
    JEL: F31 F41
    Date: 2022
  27. By: Kaltenbrunner, Annina; Perez Ruiz, Daniel; Okot, Anjelo
    Abstract: This paper presents detailed insights into the microstructural characteristics of several African Lower and Lower-Middle Income Countries (LLMICs) foreign exchange markets and the implications of these characteristics for macroeconomic management. It draws on 13 semi-structured interviews with 17 foreign exchange experts in central banks, banks, non-bank financial institutions, and research institutions in selected case studies (Ghana, Kenya, Malawi, Sierra Leone, Uganda, and Zambia) and the City of London. The results show that whilst most case study countries have functioning foreign exchange interbank markets, these markets are oftentimes characterised by low, volatile and "lumpy" liquidity. These liquidity dynamics and uncertainty about future foreign exchange flows can lead to FX hoarding among foreign exchange market participants, further depriving the official foreign exchange market of liquidity. Moreover, they provide those with access to FX liquidity with significant market power and the potential to affect price dynamics. These microstructural characteristics, in turn have meant that central banks in African LLMICs remain key agents in foreign exchange markets to manage scarce and volatile liquidity patterns. At the same time though, these microstructural weaknesses complicate central banks' ability to deal with volatile foreign exchange availability and structural depreciation pressures. Whereas hoarding behaviour reduces the central bank's access to foreign exchange, low trust in domestic currencies puts serious limits on the extent of nominal depreciations central banks will be able and willing to tolerate. Overall, the results show the difficulties of moving towards floating exchange rates in the context of African LLMICs, characterised by concentrated export structures, low trust in their currencies, and shallow domestic financial markets.
    Date: 2022
  28. By: Okot, Anjelo; Kaltenbrunner, Annina; Perez Ruiz, Daniel
    Abstract: This paper investigates the determinants of nominal exchange rates, their volatility, and crash risk in Africa's lower and lower-middle income countries (LLMICs). It combines macro-panel estimations for 15 African LLMICs with floating or lightly managed exchange rates, with insights from 13 semi-structured interviews with 17 foreign exchange market participants in six case study countries. It shows the important role African LLMICs' distinct productive and export structure, concentrated in a few agricultural and mineral-based commodities, and recent financial integration for exchange rate determination. In particular, whereas productive factors such as terms of trade, export concentration, and export prices are found to have a significant impact on the exchange rate level and volatility, financial factors including the interest rate differential, international market conditions, and short-term financial flows, matter for the likelihood of currencies to experience sudden and large exchange rate movements.
    Date: 2022
  29. By: Aklin,Michael; Kern,Andreas; Negre,Mario
    Abstract: Since the 1980s, income inequality has increased substantially in several countries. Yet the political logic that triggered rising inequality in some places but not in others remains poorly understood. This paper builds a theory that links central bank independence to these dynamics. It posits the existence of three mechanisms that tie central bank independence to inequality. First, central bank independence indirectly constrains fiscal policy and weakens a government's ability to engage in redistribution. Second, central bank independence incentivizes governments to deregulate financial markets, which generates a boom in asset values. These assets are predominantly in the hands of wealthier segments of the population. Third, to contain inflationary pressures, governments actively promote policies that weaken the bargaining power of workers. Together, these policies strengthen secular trends towards higher inequality according to standard indicators. Empirically, the analysis finds a strong relation between central bank independence and inequality, as well as support for each of the mechanisms. From a policy perspective, our findings contribute to knowledge on the undesirable side effects of central bank independence.
    Keywords: Labor Markets,Rural Labor Markets,Macroeconomic Management,Poverty Reduction Strategies,Consumption,Fiscal&Monetary Policy,Financial Structures
    Date: 2021–01–21
  30. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The early stages of recovery from the recession induced by the COVID-19 pandemic have been accompanied by a marked increase in inflation in the US and elsewhere. Much has been made of this outcomes, and the economic distress associated with it, in popular discussion of the economy. This paper provides a Kaleckian conflicting-claims analysis of inflation during the post-COVID recovery, that distinguishes between rising wages, pandemic-related supply shocks, and corporate price-setting behaviour as sources of inflationary pressure. A key conclusion that arises from the co-determination of inflation and distributional outcomes in the Kaleckian framework is that distributional developments that have further disadvantaged working households, rather than inflation per se, are the chief source of recent economic distress - and should be the chief cause for concern among policy makers.
    Keywords: Inflation, COVID-19, conflicting claims, wage share, income distribution
    JEL: E02 E11 E12 E25 E31 E64
    Date: 2022–10
  31. By: Starr, Ross; Spini, Pietro Emilio
    Abstract: A thick market external e ect is applied to a trading post model of N 3 commodities with transaction costs and distinct bid and ask prices. An existence theorem for general equilibrium with external e ects in the trading post model is stated and proved. Media of exchange occur endogenously as liquid commodities, characterized by a narrow bid/ask price spread. The thick market externality can lead to concentration of the endogenously determined media of exchange towards an equilibrium with a single medium. In a class of examples, we show that if the households have su ciently heterogeneous tastes relative to the size of the economy, the monetary equilibrium leads to higher consumption than the barter equilibrium.
    Date: 2022–10–28
  32. By: G. A. Nigmatulin; O. B. Chaganova
    Abstract: The steadily high demand for cash contributes to the expansion of the network of Bank payment terminals. To optimize the amount of cash in payment terminals, it is necessary to minimize the cost of servicing them and ensure that there are no excess funds in the network. The purpose of this work is to create a cash management system in the network of payment terminals. The article discusses the solution to the problem of determining the optimal amount of funds to be loaded into the terminals, and the effective frequency of collection, which allows to get additional income by investing the released funds. The paper presents the results of predicting daily cash withdrawals at ATMs using a triple exponential smoothing model, a recurrent neural network with long short-term memory, and a model of singular spectrum analysis. These forecasting models allowed us to obtain a sufficient level of correct forecasts with good accuracy and completeness. The results of forecasting cash withdrawals were used to build a discrete optimal control model, which was used to develop an optimal schedule for adding funds to the payment terminal. It is proved that the efficiency and reliability of the proposed model is higher than that of the classical Baumol-Tobin inventory management model: when tested on the time series of three ATMs, the discrete optimal control model did not allow exhaustion of funds and allowed to earn on average 30% more than the classical model.
    Date: 2022–10
  33. By: Mikrajuddin Abdullah
    Abstract: The effective medium approximation (EMA) method is commonly used to estimate the effective conductivity development in composites containing two types of materials: conductors and insulators. The effective conductivity is a global parameter that measures how easily the composite conducts electric current. Currently, financial transactions in society take place in cash or cashless, and, in the cashless transactions the money flows faster than in the cash transactions. Therefore, to provide a cashless grading of countries, we introduce a cashless transaction index (CTI) which is calculated using the EMA method in which individuals who make cash transactions are analogous to the insulator element in the composite and individuals who make cash transactions are analogous to the conductor element. We define the CTI as the logarithmic of the effective conductivity of a country's transactions. We also introduce the time dependent equation for the cashless share. Estimates from the proposed model can explain well the data in the last few years.
    Date: 2022–06
  34. 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: This paper considers the problem of forecasting inflation in the United States, the euro area and the United Kingdom in the presence of possible structural breaks and changing parameters. We examine a range of moving window techniques that have been proposed in the literature. We extend previous work by considering factor models using principal components and dynamic factors. We then consider the use of forecast combinations with time-varying weights. Our basic finding is that moving windows do not produce a clear benefit to forecasting. Time-varying combination of forecasts does produce a substantial improvement in forecasting accuracy.
    Keywords: forecast combinations, structural breaks, rolling windows, dynamic factor models, Kalman filter
    JEL: C52 C53
    Date: 2022–10
  35. By: Bindseil, Ulrich; Pantelopoulos, George
    Abstract: In earlier times, societies relied extensively on "IOUs" ("I owe you") to avert the need for settlement in specie. However, an IOU reliant economy is complex and fraught with financial stability risks. These problems can be overcome through clearing, netting and settlement, either without or with novation. From the perspective of creditors, the most expedient solution is for residual claims to be denominated in a large-scale, riskfree and divisible IOU that is analogous to settlement in specie, but without incurring the disadvantages ofsettlement in preciousmetalcoins. If such solutions are not feasible, it is then desirable that (1) networks of IOUs are simplified through netting, and (2) residual claims are denominated in relatively high-quality claims, which can be readily converted into risk-free positions. The purpose of this paper is to explore how such outcomes have been achieved through the lens of history. As will be shown - whilst netting and settlement with novation is an effective technique to mitigate financial instability risks - it is only through central banks acting as correspondents to the domestic financial system that the drawbacks of the IOU economy can be alleviated to the largest extent in order to attain lean balance sheets, lower credit risk and improved financial stability. At the same time, such a solution also ensures that the financial system remains layered.
    JEL: F33 G21 N20 N24
    Date: 2022

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