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on Monetary Economics |
| By: | Chadha, J. S.; Lennard, J.; Solomou, S.; Thomas, R. |
| Abstract: | This paper investigates the degree of pass-through from import prices and tariffs to wholesale prices in interwar Britain using a new high-frequency micro data set. The main results are: (i) Pass-through from import prices and tariffs to wholesale prices was economically and statistically significant. (ii) Despite devaluation, import prices exacerbated deflation in the early 1930s because of the global slump in export prices. (iii) Rising protection, however, was a mild stimulus to prices during the shift to inflation. |
| Keywords: | Exchange rates, interwar, pass-through, prices, tariffs, United Kingdom |
| JEL: | E31 F13 N14 |
| Date: | 2023–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2319&r=mon |
| By: | Ferrari, Alessandro; Landi, Valerio Nispi |
| Abstract: | We use a DSGE model to study the effectiveness of green-asset purchases by the central bank (Green QE), along the transition to a carbon-free economy driven by an emission tax, abstracting from price stability considerations. We find that Green QE helps to further reduce emissions, especially in the early stage of the transition. We find that a crucial parameter to determine the effectiveness of Green QE is the elasticity of substitution between the brown and the green good: the higher the elasticity the stronger the impact of the policy on emissions. JEL Classification: E52, E58, Q54 |
| Keywords: | central bank, climate change, monetary policy, quantitative easing |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232779&r=mon |
| By: | Lea Steininger (Department of Economics, Vienna University of Economics and Business; Vienna Institute for International Economic Studies); Alexander A. Popov (Monetary Policy Research Division, European Central Bank) |
| Abstract: | We study how monetary policy affects local market competition in a union of countries experiencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions. The underlying mechanism is a decline (increase) in short-term debt and investment by smaller and medium-size firms, relative to large firms, following monetary policy tightening (easing). |
| Keywords: | Eurozone, Monetary Union, Monetary Policy, Low Interest Rates, Competition |
| JEL: | E2 G1 G12 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp333&r=mon |
| By: | Linda S. Goldberg; Signe Krogstrup |
| Abstract: | The risk sensitivity of international capital flow pressures is explored using a new Exchange Market Pressure index that combines pressures observed in exchange rate adjustments with model-based estimates of incipient pressures that are masked by foreign exchange interventions and policy rate adjustments. The sensitivity of capital flow pressures to risk sentiment, including for so-called safe-haven currencies, evolves over time, varies significantly across countries, and differs between normal times and extreme stress events. Across countries, risk sensitivities and safe-haven status are associated with self-fulfilling exchange rate expectations and carry trade funding currencies. In contrast, association with more traditional macroeconomic country characteristics is weak. |
| Keywords: | exchange market pressure; risk aversion; safe haven; capital flows; exchange rates; foreign exchange interventions; global financial cycle |
| JEL: | F32 G11 G20 |
| Date: | 2023–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:95595&r=mon |
| By: | Gianluca Benigno; Carlo Rosa |
| Abstract: | Cryptocurrencies’ market capitalization has grown rapidly in recent years. This blog post analyzes the role of macro factors as possible drivers of cryptocurrency prices. We take a high-frequency perspective, and we focus on Bitcoin since its market capitalization dwarfs that of all other cryptocurrencies combined. The key finding is that, unlike other asset classes, Bitcoin has not responded significantly to U.S. macro and monetary policy news. This disconnect is puzzling, as unexpected changes in discount rates should, in principle, affect the price of Bitcoin. |
| Keywords: | cryptocurrency; Bitcoin; macro news; bubbles |
| JEL: | E2 E52 |
| Date: | 2023–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:95609&r=mon |
| By: | Xavier Ragot (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | This paper derives the optimal money injection at the Zero Lower Bound (ZLB), in a tractable model where households hold heterogeneous money holdings due to explicit financial frictions, such as limited participation and temporary binding credit constraints. This framework is motivated by recent empirical findings. A deleveraging shock generates deflationary pressure and a fall in the real interest rate, pushing the economy to the ZLB. The main result is that open-market operations can stabilize the economy at the ZLB whereas lump-sum money transfers cannot. Moreover, an optimal money injection does not avoid the economy being at the ZLB. |
| Keywords: | liquidity trap, zero lower bound, heterogeneous agents, optimal policy |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03922385&r=mon |
| By: | Van Roosebeke, Bert; Defina, Ryan |
| Abstract: | The topic of Central Bank Digital Currencies (CBDC) is highly relevant to deposit insurers. As an increasing number of central banks further their research and planning efforts in CBDC, IADI members are encouraged to intensify their understanding of the potential impact of the introduction of a CBDC in their own as well as in other jurisdictions. To assess the potential impact of a CBDC, a sound understanding of operating models and design features is crucial. These will affect factors of key interest to deposit insurers, such as the degree of replacement of bank deposits by CBDC. Also, the implications of choices regarding operating models and design features extend to the division of labour between central and commercial banks and the degree of privacy attached to CBDC usage. The paper offers a review of key issues relevant to deposit insurers regarding operating models and design features for CBDC, and links these to early global policy standards. Whilst not recommending a particular CBDC design, deposit insurers are encouraged to develop a deeper understanding of the principles presented and how the different policy options may affect the provision of deposit insurance. |
| Keywords: | deposit insurance; bank resolution; CBDC |
| JEL: | G21 G33 |
| Date: | 2022–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116240&r=mon |
| By: | Chikako Baba; Mr. Jaewoo Lee |
| Abstract: | The pass-through effects of oil price shocks on wage and consumer price inflation vary with the states or structural characteristics of an economy. The effects have declined over time in Europe and been higher in emerging European economies than in advanced economies. The pass-through to wages is found to have been higher when the prevailing level of inflation was higher or when the degrees of unionization and centralized bargaining were higher, while lower under a higher credibility of monetary policy. The effects of oil price shocks on core inflation and inflation expectations are consistent with their effects on wages. |
| Keywords: | Second-round effects; oil prices; wages; inflation; pass-through; monetary policy; impulse response.; oil price shock; inflation expectation; pass-through effect; oil price inflation; consumer price inflation; Unemployment rate; Nominal effective exchange rate; Europe; Global |
| Date: | 2022–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/173&r=mon |
| By: | Capasso Salvatore (Università di Napoli Parthenope, ISMed-CNR, and CSEF.); Oreste Napolitano (Università di Napoli Parthenope, ISMed-CNR); Ana Laura Vivero (Universidad Nacional Autónoma de Mexico UNAM) |
| Abstract: | The nature of the financial crisis in 2008 posed new challenges for macroeconomic theory and policy-makers. In this context, a financial conditions index (FCI) could be a useful tool to identify the state of financial conditions in a country. We construct three FCIs for Mexico to analyse the role of financial asset prices in formulating monetary policy under an inflation-targeting regime. Using monthly data from 1995 to 2017, we estimate FCIs with three different methodologies and build the index by taking into account the mechanism of transmission of monetary policy and incorporating the most relevant financial variables. Our results show that, likewise for developing countries such as Mexico, an FCI could be a useful tool for managing monetary policy in reducing macroeconomic fluctuations. |
| Keywords: | Financial conditions index, VAR model, ARDL model, TVP-VAR model. |
| JEL: | C32 G01 E44 O54 |
| Date: | 2023–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:664&r=mon |
| By: | Martín Almuzara; Argia M. Sbordone |
| Abstract: | This post presents an updated estimate of inflation persistence, following the release of personal consumption expenditure (PCE) price data for December 2022. The estimates are obtained by the Multivariate Core Trend (MCT), a model we introduced on Liberty Street Economics last year and covered most recently in a January post. The MCT is a dynamic factor model estimated on monthly data for the seventeen major sectors of the PCE price index. It decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. The trend in PCE inflation is constructed as the sum of the common and the sector-specific trends weighted by the expenditure shares. |
| Keywords: | inflation persistence; core inflation; housing |
| JEL: | E31 |
| Date: | 2023–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:95602&r=mon |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Lunan Jiang (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan) |
| Abstract: | In this paper, we assess the impact of the Medium-term Lending Facility (MLF), an instrument recently introduced by the People's Bank of China (PBoC), on treasury and corporate bond yields. This instrument and, more specifically, the transmission of its use through treasury bond yields to corporate bond yields plays a major role in the more market-based policy the PBoC envisions for the future. Using a semi-parametric local projection framework, we show that the mechanism is already fairly effective, allowing the PBoC to manipulate the entire yield curve. |
| Keywords: | Monetary policy; yield curves; MLF; Chinese bond market |
| JEL: | E52 G12 E44 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202301&r=mon |
| By: | Gardner, Leigh |
| Abstract: | Research on Africa’s monetary history has tended to focus on the imposition of colonial currencies while neglecting the monetary upheavals which faced the colonial powers after the collapse of the gold standard during World War I. Gardner profiles three crises—in The Gambia, Kenya, and Liberia—resulting from shifting exchange rates between European currencies during the 1920s and 1930s. These three cases illustrate the degree to which colonial policies struggled to keep up with the economic turmoil affecting metropolitan states and bring Africa into the story of global monetary instability during the interwar period, which is often told only from a European perspective. |
| Keywords: | gold standard; colonialism; exchange rates; The Gambia; Liberia; Kenya; CUP deal |
| JEL: | N17 F54 |
| Date: | 2022–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:116665&r=mon |
| By: | Popov, Alexander A.; Steininger, Lea |
| Abstract: | We study how monetary policy affects local market competition in a union of countries experiencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions. The underlying mechanism is a decline (increase) in short-term debt and investment by smaller and medium-size firms, relative to large firms, following monetary policy tightening (easing). |
| Keywords: | Eurozone, Monetary Union, Monetary Policy, Low Interest Rates, Competition |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:35832981&r=mon |
| By: | Richtmann, Mathis L.; Steininger, Lea |
| Abstract: | The permanent international lender of last resort consists of a swap line network between six major central banks, centering around the US Federal Reserve. Arguably, this network is a solution to a long debated problem as it provides public emergency liquidity provision to the world's largest financial market, the Eurodollar market. Drawing on exclusive interviews with monetary technocrats as well as a textual analysis of Federal Open Market Committee meeting transcripts over the course of 14 years, we reconstruct how this facility came into being. Building on Kalyanpur (2017) and Braun (2015), we develop an interpretative framework of bricolage to set the formation into context: In times of crises, central bankers rely on retrospection, experimentation, and creative re-deployment to develop their tools. However, in non-crises times, those tools prevail which offer what we coin 'bureaucratic familiarity'. |
| Keywords: | Standing Swap Facilities, lender of last resort, International Monetary Policy, Central Bank Cooperation, Monetary Technocrats |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:35833590&r=mon |
| By: | Christophe Blot (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) |
| Abstract: | The rise of inflation has sparked tightening measures by the ECB. The paper discusses the causes of this rise and the factors that impinge on the effectiveness of ECB policy at curbing inflation. Drawing on own assessment of the respective trends in these factors, we recommend a careful approach to monetary policy. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 26 September 2022. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03954545&r=mon |
| By: | Mikhail Andreyev (Bank of Russia, Russian Federation) |
| Abstract: | Does a stabilization fiscal rule based on long-term resource prices and the formation of a sovereign wealth fund effectively reduce volatility of output, inflation, and exchange rate? Given that the previous fiscal rule in Russia has been violated since the beginning of 2022, what might the new fiscal rule look like and will it be effective? We tried to answer these questions using a dynamic stochastic general equilibrium model. A study shows that there are a number of economic parameters and types of fiscal rules under which the introduction of a mechanism for smoothing budget expenditures does not lead to a decrease in the volatility of some macroeconomic indicators. We have found that cases, when the introduction of a smoothing mechanism does not lead to a decrease in the volatility of output and the exchange rate, are rare and economically interpretable. As for the effect of the fiscal rule on inflation volatility, it turns out that it depends on many parameters such as such the design of the budget rule, the duration of price and wage contracts, and the presence of capital control. The fiscal rule, which operated until 2022 and used an external sovereign wealth fund, proved to be the most effective for stabilization purposes. In the new reality, with the impossibility of accumulating external reserves, the rule that saves additional oil and gas revenues within the country and uses the debt market to smooth budget revenues turned out to be the most effective and feasible. |
| Keywords: | DSGE model, fiscal rule, inflation, exchange rate pass-through, business cycle, commodity prices, fiscal policy, monetary policy |
| JEL: | D58 E47 E62 E63 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps107&r=mon |
| By: | Alessia Paccagnini; Fabio Parla |
| Abstract: | It depends. We reply to this question by providing novel empirical evidence about the US economy. We identify the impact of financial high-frequency shocks on macroeconomic variables by estimating mixed- and common frequency VARs. The results from the mixed-frequency VAR show that economic output and inflation move in opposite directions in response to detrimental financial conditions, mimicking negative aggregate supply shocks. Oppositely, the results from the common-frequency VAR show that worsening financial conditions lead to a drop in output and inflation (and in the monetary policy rate), resembling negative aggregate demand shocks. |
| Keywords: | Financial Conditions, High-Frequency, Shock Identification, Mixed-Frequency VAR |
| JEL: | C32 C54 E44 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-10&r=mon |
| By: | Stephanie L. Mudge (UC Davis - University of California [Davis] - UC - University of California); Antoine Vauchez (CESSP - Centre européen de sociologie et de science politique - UP1 - Université Paris 1 Panthéon-Sorbonne - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We analyze the trajectory of independence in the formation of the European Central Bank (ECB), conceptualized as a boundary organization that, by delineating the European economy, contributes to a supranational state effect. Success in the effort, however, requires the ECB to constantly assert a separate and special status, despite its embeddedness in multiple fields. Focusing on the European Monetary Institute, the ECB's predecessor, we trace how historically obscure bank-based legal experts enabled the ECB's assertion of separateness by reworking independence into a newly multivalent category that could be wielded in authority struggles with national central banks and European institutions. The ECB's dependence on independence, we argue, renders it uniquely vulnerable to the repoliticization of central banking. |
| Keywords: | central banks independence lawyers eurozone, central banks, independence, lawyers, eurozone |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03913667&r=mon |
| By: | Magdalena Petrovska (National Bank of the Republic of North Macedonia); Jasna Tonovska (Faculty of Economics – Ss. Cyril and Methodius University in Skopje); Miso Nikolov (IUTE Credit Macedonia); Рртан Сулејмани (National Bank of the Republic of North Macedonia) |
| Abstract: | This paper has adopted a Bayesian FAVAR approach to examine the monetary transmission mechanism in North Macedonia. The model is based on a broad data set that encompasses 140 monthly time series spanning between January 2010 and January 2019. In particular, the impact of policy on bank portfolio variables, and the impact of policy on economic activity variables have been evaluated. Our findings show that monetary tightening, causes a fall in output, inflation rate, employment, bank lending, the stock of government securities held by banks, and equity prices. On the other hand, it increases short-term money market rates, lending rates, deposits, and only in the immediate aftermath of the key policy rate rise, the share of non-performing loans in the loan portfolio. The study is expected to provide useful input to monetary policy implementation in North Macedonia. The study as well enriches the literature in this domain by discussing the challenges facing monetary authorities of small open economies with fixed exchange rate regimes in understanding how their policy instruments work through the economy. |
| Keywords: | Monetary transmission mechanism, FAVAR, Bayesian estimation, Monetary policy |
| JEL: | E52 E47 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:mae:wpaper:2023-01&r=mon |
| By: | Juan Acosta; Beatrice Cherrier (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, X - École polytechnique); François Claveau; Clément Fontan; Aurélien Goutsmedt; Francesco Sergi |
| Abstract: | This paper discusses the transformation of the content, role, and status of economic research at the Bank of England in the past 60 years. We show how four three factors (the policy functions and missions of the Bank, the attitude of its executives towards economics, and its organizational structure) shaped the evolution of in-house economic research at the Bank during three distinctive periods (1960-1991; 1992-2007; 2007-2014). Our account relies on a broad set of sources and methods (the Bank's publications, archives, interviews with current and former Bank's economists, bibliometric, prosopography, and topic modeling). |
| Keywords: | Bank of England, Monetary Policy, Central Banks |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03919394&r=mon |
| By: | Carolin Pflueger |
| Abstract: | I use nominal and real bond risks as new moments to discipline a New Keynesian asset pricing model, where supply shocks, demand shocks, and monetary policy are the fundamental drivers of inflation. Endogenously time-varying risk premia imply that nominal bond risks—as measured by their stock market beta—are a forward-looking indicator of stagflation risks. Calibrating the model separately for the 1980s and the 2000s, I show that positive nominal bond betas in the 1980s resulted from a “perfect storm” of supply shocks and a reactive monetary policy rule, but not from either supply shocks or monetary policy in isolation. |
| JEL: | E0 E31 E40 G10 G12 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30921&r=mon |