|
on Monetary Economics |
| By: | Sandra Eickmeier; Boris Hofmann |
| Abstract: | e estimate indicators of aggregate demand and supply conditions based on a structural factor model using a large number of inflation and real activity measures for the United States. We identify demand and supply factors by imposing theoretically motivated sign restrictions on factor loadings. The results provide a narrative of the evolution of the stance of demand and supply over the past five decades. The most recent factor estimates indicate that the inflation surge since mid-2021 has been driven by a combination of extraordinarily expansionary demand conditions and tight supply conditions. We obtain similar results for the euro area, but with a somewhat greater role for tight supply consistent with the greater exposure of the euro area to recent adverse global energy price shocks. We further find that tighter monetary policy and financial conditions dampen both demand and supply conditions. |
| Keywords: | inflation, aggregate demand and supply, factor model, sign restrictions, monetary policy. |
| JEL: | E3 E5 E6 C3 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1047&r=mon |
| By: | Pompeo Della Posta; Roberto Tamborini |
| Abstract: | In the revised monetary policy strategy of the European Central Bank (ECB), “price stability is best maintained by aiming for two per cent inflation over the medium term”, with “symmetric commitment” to this target. “Symmetry means that the Governing Council considers negative and positive deviations from this target as equally undesirable”. In this article, we therefore analyse this policy strategy through a model of inflation target zone, with a central value and symmetric upper and lower bounds on inflation, within which the central bank may decide not to intervene, provided inflation is expected to fluctuate around the central value. We show that the policy benefits guaranteed by a target zone can be dissipated if market agents are uncertain about its width. |
| Keywords: | European Central Bank, monetary policy strategy, inflation target zones |
| JEL: | E31 E42 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10014&r=mon |
| By: | Blumenstock, Joshua; Callen, Mike; Ghani, Tarek; González, Roberto |
| Abstract: | We provide evidence that violence reduces the adoption and use of mobile money in three separate empirical settings in Afghanistan. First, we spatially merge nationwide administrative data on 96,000 violent events with the universe of mobile money transactions and find that users exposed to nearby violence reduce their mobile money account balances and conduct fewer transactions. Second, using high-frequency panel survey data from a field experiment, we find that subjects expecting violence are half as likely to respond to a randomized mobile money supply shock as those not expecting violence. Finally, analyzing financial survey data from nineteen of Afghanistan’s 34 provinces, we find that individuals expecting violence hold more cash. Collectively, our evidence suggests that violence can impede the growth of formal financial systems. |
| Keywords: | violence; financial development; mobile money |
| JEL: | O17 O33 D14 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:117303&r=mon |
| By: | Freitag, Andreas (University of Basel); Lein, Sarah |
| Abstract: | We document how product quality responds to exchange rate movements and quantify the extent to which these quality changes affect the aggregate pass-through into export prices. We analyze the substantial sudden appreciation of the Swiss franc post removal of the 1.20-CHF-per-euro lower bound in 2015 using export data representing a large share of the universe of goods exports from Switzerland. We find that firms upgrade the quality of their products after the appreciation. Furthermore, they disproportionately remove lower-quality products from their product ranges. This quality upgrading and quality sorting effect accounts for a substantial share of the total pass-through one year after the appreciation. We cross-check our results with the microdata underlying the Swiss export price index, which includes an adjustment factor for quality based on firms' reported product replacements, and obtain similar results. |
| Keywords: | large exchange rate shocks, exchange rate pass-through, quality adjustment |
| JEL: | E3 E31 E50 F14 F41 |
| Date: | 2022–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2022/09&r=mon |
| By: | Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Renault, Théodore |
| Abstract: | Using regionally disaggregated data on economic activity, we show that risk sharing plays a key role in shaping the real effects of monetary policy. With weak risk sharing, monetary policy shocks trigger a strong and durable response in output. With strong risk sharing, the response is attenuated, and output reverts to its initial level over the medium term. The attenuating impact of risk sharing via credit and factor markets concentrates over a two-year horizon, whereas fiscal risk sharing operates over longer horizons. Fiscal risk sharing especially benefits poorer regions by shielding them against persistent output contractions after tightening shocks. JEL Classification: C32, E32, E52 |
| Keywords: | local projections, monetary policy, quantile regressions, regional heterogeneity, risk sharing |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222746&r=mon |
| By: | Gern, Klaus-Jürgen; Kooths, Stefan; Reents, Jan; Sonnenberg, Nils; Stolzenburg, Ulrich |
| Abstract: | In spring 2022, world economic growth came to a standstill amid high inflation, persistent supply bottlenecks and elevated uncertainty. In many countries real wages are declining significantly dampening private consumption even though extra savings accumulated during the pandemic are still available to mitigate the adverse impact to some extent. At the same time financial conditions have also deteriorated as central banks tightened their policies. In China, the strict zero-covid policy and problems in the real estate sector are slowing economic activity. Against this backdrop, the outlook for the global economy has deteriorated further. We have, again, lowered our forecast and are now expecting global output to increase by only 2.9 percent this year and 2.2 percent next year (calculated on a purchasing power parity basis). The forecast assumes that commodity prices will gradually decline in line with forward prices, which will over time reduce the upward pressure on prices and provides the foundations for an economic upturn in 2024. However, the pass-through of higher commodity prices into consumer prices is probably not yet complete and wage increases are likely to intensify in many countries. Consequently, underlying inflation is likely to remain higher than in the years before the Covid crisis and remain above central bank targets over the forecast horizon. |
| Keywords: | advanced economies,emerging economies,monetary policy |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkeo:93&r=mon |
| By: | José Vicente Romero; Sara Naranjo-Saldarriaga |
| Abstract: | Colombia is particularly affected by the El Niño Southern Oscillation (ENSO) weather fluctuations. In this context, this study explores how the adverse weather events linked to ENSO affect the inflation expectations in Colombia and how to incorporate these second-round effects into a small open economy New Keynesian model. Using BVARx models we provide evidence that the inflation expectations obtained from surveys and break-even inflation measures are affected by weather supply shocks. Later, using this stylised fact, we modify one of the core forecasting models of the Banco de la República by incorporating the mechanisms in which weather-related shocks affect marginal costs and inflation expectations. We find that ENSO shocks had an important role in both inflation and the dynamics of inflation expectations, and that policymakers should consider this fact. **** RESUMEN: Colombia es un país que esta particularmente afectado por las fluctuaciones climáticas de El Niño (ENSO). En este contexto, este estudio explora cómo los eventos meteorológicos adversos vinculados con el ENSO afectan las expectativas de inflación en Colombia y analiza cómo incorporar estos efectos de segunda ronda en un modelo neokeynesiano para una economía pequeña y abierta. Usando modelos BVARx se proporciona evidencia que tanto la inflación como sus expectativas se ven afectadas por choques de oferta climáticos. Posteriormente, y haciendo uso de este hecho estilizado, se modifica uno de los modelos centrales de pronóstico del Banco de la República y se incorporan mecanismos bajo los cuales los choques climáticos afectan los costos marginales y las expectativas de inflación. En este documento se encuentra que las fluctuaciones relacionadas con el ENSO han tenido un papel importante tanto en la inflación como en la dinámica de las expectativas y que, por lo tanto, las autoridades deberían considerar este hecho en su análisis sobre el estado actual de la economía. |
| Keywords: | Inflation, inflation expectations, inflation expectations anchoring, weather shocks, Inflación, expectativas de inflación, anclaje de las expectativas de inflación, choques climáticos |
| JEL: | D84 E31 E52 Q54 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1218&r=mon |
| By: | Leonardo Bonilla; Luz A Flórez; Didier Hermida; Francisco Lasso; Leonardo Fabio Morales; Juan Jose Ospina; José Pulido |
| Abstract: | We estimate indicators of aggregate demand and supply conditions based on a structural factor model using a large number of inflation and real activity measures for the United States. We identify demand and supply factors by imposing theoretically motivated sign restrictions on factor loadings. The results provide a narrative of the evolution of the stance of demand and supply over the past five decades. The most recent factor estimates indicate that the inflation surge since mid-2021 has been driven by a combination of extraordinarily expansionary demand conditions and tight supply conditions. We obtain similar results for the euro area, but with a somewhat greater role for tight supply consistent with the greater exposure of the euro area to recent adverse global energy price shocks. We further find that tighter monetary policy and financial conditions dampen both demand and supply conditions. |
| Keywords: | automation, pandemic, vacancies, employment. |
| JEL: | J23 O30 J60 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1048&r=mon |
| By: | Levrero, Enrico Sergio (Roma Tre University) |
| Abstract: | The aim of this paper is to assess to what extent the Taylor rule can be considered an appropriate representation of the tendency of central banks to react to price inflation. After an overview of the origin and use of the Taylor rule, the paper stresses some difficulties in its implementation according to the modern theory of central banking and the limits of its interpretation by the New Consensus models. Finally, an alternative interpretation of this rule along Classical-Keynesian lines is advanced. In this context, it has to be interpreted, as it is in actual fact, as a flexible and non-mechanical benchmark for monetary policies which are seen to affect income distribution between wages and profits. |
| Keywords: | Monetary policy; Taylor rule; Cost-push inflation |
| JEL: | E11 E12 E52 E58 |
| Date: | 2022–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0059&r=mon |
| By: | Christophe Blot (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Caroline Bozou (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Paul Hubert (Observatoire Français des Conjonctures Economiques - Centre de recherche de la fondation nationale des sciences politiques, Banque de France - Banque de France - Banque de France) |
| Abstract: | Does policymakers' rationale for a given policy influence the impact of this policy? To answer this question, we exploit the unique setting provided by ECB asset purchase programs. PSPP and PEPP policies consist in purchases of essentially identical assets, but their objectives differ. The PSPP aimed to reduce deflationary risks, while the PEPP was announced in response to the pandemic-driven economic crisis to alleviate sovereign risks. We assess the effects of both policies on both objectives. We find that the PSPP positively affects inflation swaps while the PEPP negatively impacts sovereign spreads but much less evidence of the opposite pattern. |
| Keywords: | Monetary policy,Asset prices,Central bank communication,Central bank reaction function,Intermediate objectives |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:spmain:hal-03554141&r=mon |
| By: | Solomou, Solomos; Lennard, Jason; Meinecke, Finn |
| Abstract: | What caused the recovery from the British Great Depression? A leading explanation – the ‘expectations channel’– suggests that a shift in expected inflation lowered realinterest rates and stimulated consumption and invest-ment. However, few studies have measured, or tested theeconomic consequences of, inflation expectations. In thispaper,wecollecthigh-frequencyinformationfromprimaryand secondary sources to measure expected inflation inthe United Kingdom between the wars. A high-frequencyvector autoregression suggests that inflation expectationswere an important source of the early stages of economicrecovery in interwar Britain. |
| Keywords: | Great depression; inflation; expectations; interwar Britain; regime change; Wiley deal |
| JEL: | N0 |
| Date: | 2022–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:116889&r=mon |
| By: | Aleksandr V. Gevorkyan; Tarron Khemraj (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | The paper assesses the effects of dominant currency shocks (strong US dollar) on emerging markets by studying exchange market pressure (EMP) or foreign exchange (FX) liquidity, GDP growth, external debt, and inflation. The literature emphasizes inflation passthrough, trade volume and GDP growth contraction in the periphery following a strong dollar. Comparing the dollar shock with euro and commodity price shocks and employing pooled mean group estimates and panel VAR across regimes of trade invoicing, this paper shows that bilateral depreciation can decrease FX liquidity and GDP growth in the periphery, failing to achieve the conventional macroeconomic adjustments of a competitive depreciation. A strong dollar reduces external debt, but strong euro has the opposite effect, implying circumvention of the ‘original sin.’ An EMP, FX liquidity, shock from the periphery appreciates the US dollar, affirming dollar’s safehaven status. These findings have implications for balance of payments and exchange rate policy management. |
| Keywords: | dominant currency pricing, exchange market pressure, international monetary system, nominal spillovers |
| JEL: | E24 I14 J62 J38 E21 J83 J32 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepawp:2022-01&r=mon |
| By: | Hadrien Camatte (Banque de France - Gaz de France Direction de la Recherche); Guillaume Daudin (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique); Violaine Faubert (Banque de France - Gaz de France Direction de la Recherche); Antoine Lalliard (Banque de France - Gaz de France Direction de la Recherche); Christine Rifflart (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | Following the 2008 financial crisis, inflation rates in advanced economies have been at odds with the prediction of a standard Phillips curve. This puzzle has triggered a debate on the global determinants of domestic prices. We contribute to this debate by investigating the impact of exchange rate shocks on consumer prices from 1995 to 2018. We focus on cost-push inflation through global value chains, using three sectoral world input-output datasets. Depending on countries, the absolute value of the elasticity of the household consumption expenditure (HCE hereafter) deflator to the exchange rate ranges from 0.05 to 0.35, confirming the importance of global value chains in channelling external shocks to domestic inflation. Using data from WIOD on a sample of 43 countries, we find that the mean output-weighted elasticity of the HCE deflator to the exchange rate increased in absolute value from 0.075 in 2000 to 0.094 in 2008. After peaking in 2008, it declined to 0.088 in 2014. World Input-Output tables (WIOT hereafter) are released with a lag of several years and the latest WIOT dates back to 2015. To fill this gap, we approximate the impact of an exchange rate shock on the HCE deflator from 2016 onwards using up-to -date GDP and trade data. Our extrapolations suggest that the decline in the elasticity of the HCE deflator continued until 2016, before reversing in 2017 and 2018. Our findings are robust to using three different datasets. |
| Keywords: | Inflation,global value chains,Phillips curve,input output tables,international trade,pass through |
| Date: | 2021–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:spmain:hal-03134873&r=mon |
| By: | Eichacker, Nina |
| Abstract: | In times of financial crisis, we expect monetary authorities to provide liquidity support to banks at risk of failure. However, governments often provide monetary support to banks at risk of failure through guarantees and direct lending to financial institutions, often in tandem with monetary authorities. At the same time, governments may require liquidity support in moments of crisis, when cyclical deficits rise, and bond market activity constrains access to funding. This paper introduces governments’ activity into both the Post-Keynesian theory of endogenous money as well as Mehrling’s ‘Money View’ of the economy. It demonstrates how government activity becomes more important during periods of heightened liquidity preference through its support of financial institutions, while governments may simultaneously become more vulnerable to private bondholders increased liquidity preference. Some governments are likely to face greater obstacles in providing liquidity and accessing funding in times of economic uncertainty, while others may find their ability to provide liquidity is bolstered by popular perceptions of their credit worthiness. Recent experiences during the Global Financial Crisis, the Eurozone Crisis, and the COVID-19 Crisis illustrate the importance of understanding the monetary and financial factors that may constrain governments’ abilities to fund deficits, especially given the importance of fiscal expenditure as a stabilizing economic force, or as a potential driver of economic development. |
| Date: | 2022–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:nmcp5&r=mon |
| By: | Grégory Levieuge (LEO - Laboratoire d'Économie d'Orleans [FRE2014] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique); Yannick Lucotte (LEO - Laboratoire d'Économie d'Orleans [FRE2014] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique, PSB - Paris School of Business - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université); Florian Pradines-Jobet (PSB - Paris School of Business - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université) |
| Keywords: | Banking crises,Fiscal rules,Monetary policy,Exchange rate regime,Constrained discretion |
| Date: | 2021–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03493136&r=mon |
| By: | Saccal, Alessandro |
| Abstract: | This monograph presents a formal proof of the notion by which a country devoid of tradable assets and without access to foreign borrowing and lending must systematically pay for its imports in foreign currency through its exports alone, provided a demand for them to begin with. It likewise sets forth a formal proof of the Triffin dilemma, by which a country whose external currency enjoys the status of an international reserve currency is bound to incur a trade deficit and an attendant excess of extant foreign net borrowing in relation to its tradable assets, meanwhile advancing an innovative, orderly model of the balance of payments. Currency regimes, sudden stops in foreign net borrowing, international reserve currencies and changes in private and public consumption are additionally examined. This monograph completes its study of the dynamics pertaining to exports and foreign borrowing by means of a static deterministic partial equilibrium (SDPE) model, via stability analysis. |
| Keywords: | balance of payments; exports; imports; international reserve currency; Triffin dilemma; tradable assets. |
| JEL: | E12 F13 F30 F31 F41 F45 F52 N10 |
| Date: | 2022–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114862&r=mon |
| By: | Ablam Estel Apeti (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | Based on a sample of 76 developing countries over 1990-2019, we assess the effect of adopting mobile money on consumption volatility using entropy balancing. We reveal that countries with mobile money exhibit lower consumption volatility. After checking the robustness of this result, we show that the key drivers of mobile money's stabilizing effect are financial inclusion and migrant remittances. Heterogeneity tests conducted indicate the sensitivity of the result to time and type of mobile money and to some structural factors, including trade openness, inflation, rural population, the rule of law, and level of development. |
| Keywords: | Mobile money,entropy balancing,consumption volatility,developing countries |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03819779&r=mon |
| By: | Bittner, Christian; Bonfim, Diana; Heider, Florian; Saidi, Farzad; Schepens, Glenn; Soares, Carla |
| Abstract: | This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards. JEL Classification: E44, E52, E58, E63, F45, G20, G21 |
| Keywords: | bank balance sheets, bank lending, bank risk taking, euro-area heterogeneity, transmission of monetary policy |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222745&r=mon |
| By: | Alena Kang-Landsberg; Matthew Plosser |
| Abstract: | When the Federal Open Market Committee (FOMC) wants to raise the target range for the fed funds rate, it raises the interest on reserve balances (IORB) paid to banks, the primary credit rate offered to banks, and the award rate paid to participants that invest in the overnight reverse repo (ON RRP) market to keep the fed funds rate within the target range (see prior Liberty Street Economics posts on this topic). When these rates change, market participants respond by adjusting the valuation of financial products, of which a significant category is deposits. Understanding how deposit terms adapt to changes in policy rates is important to understanding the impact of monetary policy more broadly. In this post, we evaluate the pass through of the fed funds rate to deposit rates (that is, deposit betas) over the past several interest rate cycles and discuss factors that affect deposit rates. |
| Keywords: | deposits; beta; fed funds; monetary policy |
| JEL: | G2 E5 |
| Date: | 2022–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:95154&r=mon |
| By: | Drago Bergholt; Øistein Røisland; Tommy Sveen; Ragnar Torvik |
| Abstract: | We study how monetary policy should respond to shocks which permanently alter the steady state structure of the economy. In such a case monetary policy affects not only the short run misallocations due to nominal rigidities, but also relative prices which stimulate reallocation of capital. We consider a permanent and negative shock to export revenues that requires a larger traded sector and a smaller non-traded sector in the new steady state. This reallocation calls for a change in relative prices during the transition, but may also lead to a period of high unemployment. We show how an appropriate monetary policy could mitigate the welfare costs of the transition by allowing the exchange rate to depreciate, and thereby allowing inflation to increase in the short run. Traditional monetary policy regimes, such as inflation targeting or a fixed exchange rate, would imply high unemployment and inefficiently slow transition. Stabilizing nominal wage growth, in contrast, would be close to the welfare-optimal monetary policy. |
| Keywords: | Structural Change, Dutch Disease, Monetary Policy |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0107&r=mon |
| By: | Kamau, Charles Guandaru (Technical University of Mombasa) |
| Abstract: | This study examines Kenyan youths' level of knowledge and involvement in the cryptocurrency industry. Digital currencies known as cryptocurrencies use a peer-to-peer technology to speed up internet transactions. The idea of crypto currencies started out slowly in the 1980s but has since developed significantly. The study collected secondary data and conducted online surveys. In this study, panel data from four different crypto currencies' values, transaction fees, and volume over a six-year period were studied. The findings indicate a connection between the number of cryptocurrency transactions, their prices, and their transaction costs. The research also demonstrates how much the youth in Kenya are aware of and using cryptocurrencies. This paper also highlights some factors that may be considered when engaging in crypto business. It also highlights some of the principal properties of cryptos. The study concludes that there is a need for both local and international regulation of the cryptocurrency market so as to boost investor confidence and improve security. |
| Date: | 2022–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:5ub7v&r=mon |
| By: | Raphael Auer; Giulio Cornelli; Sebastian Doerr; Jon Frost; Leonardo Gambacorta |
| Abstract: | Prices for cryptocurrencies have undergone multiple boom-bust cycles, together with ongoing entry by retail investors. To investigate the drivers of crypto adoption, we assemble a novel database (made available with this paper) on retail use of crypto exchange apps at daily frequency for 95 countries over 2015–22. We show that a rising Bitcoin price is followed by the entry of new users. About 40% of these new users are men under 35, commonly identified as the most "risk-seeking" segment of the population. To establish a causal effect of prices on adoption, we exploit two exogenous shocks: the crackdown of Chinese authorities on crypto mining in mid2021 and the social unrest in Kazakhstan in early 2022. During both episodes price changes have a significant effect on the entry of new users. Results from a PVAR model corroborate these findings. Overall, back of the envelope calculations suggest that around three-quarters of users have lost money on their Bitcoin investments. |
| Keywords: | bitcoin, cryptocurrencies, cryptoassets, regulation, decentralised finance, DeFi, retail investment. |
| JEL: | E42 E51 E58 F31 G28 L50 O32 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1049&r=mon |
| By: | Manjola Tase |
| Abstract: | This paper outlines a model of demand segmentation in the federal funds market with two types of borrowers - the "interest on reserves (IOR) arbitrage'' type and the "regulatory'' type - which have different reservation prices and cannot always be separated. When fed funds trade above IOR, the "regulatory" type is revealed and consequently pays an interest rate closer to its real reservation price, pushing the fed funds rate further up. When fed funds trade below IOR, a decrease in the fed funds rate encourages entry in the market for IOR arbitrage purposes thus counteracting the downward pressure on the fed funds rate. We use probit regression models and daily data for the period April 2018 to February 2020 to provide empirical support for this model. We find the following: 1) When fed funds trade above IOR, there is, on average, a 10 percentage points increase in the probability that the fed funds rate increases the following period. Furthermore, analysis using confidential bank-level data shows that this increase in the probability is higher for banks that report their liquidity profile daily and that were present all trading days during this period. 2) When the fed funds trade below IOR, the probability of a decrease in the fed funds rate decreases with the widening of the spread between the fed funds rate and IOR. |
| Keywords: | Fed funds; Demand segmentation; Repo; Monetary policy |
| JEL: | E49 E52 G28 |
| Date: | 2022–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-71&r=mon |
| By: | Hadrien Camatte; Guillaume Daudin (DIAL - Développement, institutions et analyses de long terme, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique); Violaine Faubert; Antoine Lalliard; Christine Rifflart (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | We analyse the elasticity of the household consumption expenditure (HCE) deflator to the exchange rate, using world input-output tables (WIOT) from 1995 to 2019. In line with the existing literature, we find a modest output-weighted elasticity of around 0.1. This elasticity is stable over time but heterogeneous across countries, ranging from 0.05 to 0.22. Such heterogeneity mainly reflects differences in foreign product content of consumption and intermediate products. Direct effects through imported consumption and intermediate products entering domestic production explain most of the transmission of an exchange rate appreciation to domestic prices. By contrast, indirect effects linked to participation in global value chains play a limited role. Our results are robust to using four different WIOT datasets. As WIOT are data-demanding and available with a lag of several years, we extrapolate a reliable estimate of the HCE deflator elasticity from 2015 onwards using trade data and GDP statistics. |
| Keywords: | Input-output linkages,Spillovers,Global value chains,Cost-push inflation |
| Date: | 2021–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:spmain:hal-03411197&r=mon |
| By: | Lhuissier, Stéphane; Ortmans, Aymeric; Tripier, Fabien |
| Abstract: | We document the time-varying divergence of predictive inflation distributions across euro area countries and explore their macroeconomic origins. While the dispersion of inflation rates mainly concerns upside inflation risks during the first decade of the euro area, it shifted to downside inflation risks during the second decade. The dispersion of downside and upside risks to inflation reaches record levels in the wake of the COVID crisis. The main determinant of the dispersion at the bottom of the distribution is the development of financial stress. In the wake of the COVID crisis, value chain pressures drove the dispersion of upside inflation risks. Overall, the dispersion of inflation rates is largely caused by heterogeneous Phillips curves between countries rather than by different national economic contexts. |
| Keywords: | Inflation; Inflation-at-Risk; Inflation dispersion; Monetary Union; Euro area |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:docweb:2212&r=mon |
| By: | Roberto Duncan; Enrique Martinez-Garcia; Patricia Toledo |
| Abstract: | This paper proposes new measures of the effectiveness of inflation targeting (IT) and evaluates its main drivers in a (large) sample of advanced economies (AEs) and emerging market and developing economies (EMDEs). Using synthetic control methods, we find that IT has heterogeneous effects on inflation across countries. The gains shifting the level of inflation (generally downwards) are modest and smaller in AEs than are those in EMDEs. All such gains are statistically significant in one out of three economies approximately. Second, statistically significant differences in keeping inflation close to target under IT (compared with estimated counterfactuals) can be detected more broadly in nearly half of the economies. Third, IT can be a source of economic resilience that helped cushion inflation fluctuations during the 2007-09 Global Financial Crisis with statistically significant gains mostly found among EMDEs (in two out of three of these economies). Finally, we find that IT effectiveness—measured by the dynamic treatment effect and the absolute deviations of both observed and synthetic inflation from target—is significantly correlated with indices of exchange rate stability and monetary policy independence, especially among EMDEs. |
| Keywords: | Inflation targeting; Monetary policy; Inflation; synthetic control method |
| JEL: | C33 E31 E42 E52 E58 E61 N10 |
| Date: | 2022–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:95090&r=mon |
| By: | Marcin Kolasa (SGH Warsaw School of Economics and International Monetary Fund); Grzegorz Wesołowski (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | Large international capital movements tend to be associated with strong fluctuations in asset prices and credit, contributing to domestic financial cycles and posing challenges for stabilization policies, especially in emerging market economies. In this paper we argue that these challenges are particularly severe if the global financial cycle is driven by quantitative easing (QE) in the US, and when the local banking sector has large holdings of government bonds, like in many Latin American (LA) countries. We first investigate empirically the impact of a typical round of QE by the US Fed on LA economies, finding a persistent expansion in credit to households and house prices as well as a significant loss of price competitiveness in this group of economies. We next develop a quantitative macroeconomic model of a small open economy with segmented asset markets and banks, which accounts for these observations. In this framework, foreign QE creates tensions between macroeconomic and financial stability as a contractionary impact of exchange rate appreciation is accompanied by booming credit and house prices. As a consequence, conventional monetary policy accommodation aimed at stabilizing output and inflation would further exacerbate domestic financial cycle. We show that an effective way of resolving this trade-off is to impose a time-varying tax on capital inflows. Combining foreign exchange interventions with tightening of local credit policies can also restore macroeconomic and financial stability, but at the expense of a large redistribution of wealth between borrowers and savers. |
| Keywords: | quantitative easing, global financial cycle, domestic credit, exchange rate interventions, capital controls, macroprudential policy |
| JEL: | E44 E58 F41 F42 F44 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2022-15&r=mon |
| By: | De Koning, Kees |
| Abstract: | The Bank of England started with Quantitative Easing in 2009 and bought U.K. Gilts for £445 billion. The Bank subsequently bought a further £450 billion. The Bank recently increased its key interest rate to 3%. The pressure on household's budgets is immense. This paper proposes a different approach. Instead of QE aimed at increasing costs of borrowing, it proposes to use home equity - savings made in the past - to be used instead. Why and how this can be done is explained in this paper. |
| Keywords: | Quantitative Easing; Home Equity as a source of Economic Growth |
| JEL: | E2 E21 E31 E4 E44 E52 E58 |
| Date: | 2022–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115288&r=mon |