nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒03‒13
thirty-one papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Inflation expectations in the euro area: trends and policy considerations By Christophe Blot; Caroline Bozou; Jérôme Creel
  2. The Fiscal Transmission Mechanism of Inflation By Gmeiner, Robert; Larson, Sven
  3. Transmission mechanisms of conventional and unconventional monetary policies in open economies By Ivan Hajdukovic
  4. How Costly Will Reining in Inflation Be? It Depends on How Rational We Are By Jorge Alvarez; Allan Dizioli
  5. Macroeconomic Effects of Monetary Policy in Japan: An Analysis Using Interest Rate Futures Surprises By Hiroyuki Kubota; Mototsugu Shintani
  7. Optimal simple monetary policy rules for a resource-rich economy and the Zero Lower Bound By Mikhail Andreyev; Andrey Polbin
  8. The Impact of Negative News on Public Perception of Inflation By Alina Evstigneeva; Daniel Karpov
  9. Is the Green Transition Inflationary? By Marco Del Negro; Julian di Giovanni; Keshav Dogra
  10. Monetary policy and local industry structure By Popov, Alexander; Steininger, Lea
  11. Currency Compositions of International Reserves and the Euro Crisis By Laser, Falk Hendrik; Weidner, Jan
  12. Negative rates, monetary policy transmission and cross-border lending via international financial centres By Andreeva, Desislava; Coman, Andra; Everett, Mary; Froemel, Maren; Ho, Kelvin; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Wong, Andrew; Wong, Eric; Żochowski, Dawid
  13. Undesired Consequences of Calvo Pricing in a Non-linear World By Ales Marsal; Katrin Rabitsch; Lorant Kaszab
  14. Gold as International Reserves: A Barbarous Relic No More? By Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen
  15. Inflation, Output, and Welfare in the Laboratory By Janet Hua Jiang; Daniela Puzzello; Cathy Zhang
  16. Is the Green Transition Inflationary? By Marco Del Negro; Julian di Giovanni; Keshav Dogra
  17. Global Money Supply and Energy and Non-Energy Commodity Prices: A MS-TV-VAR Approach By Stefano Grassi; Francesco Ravazzolo; Joaquin Vespignani; Giorgio Vocalelli
  18. The Canadian Neutral Rate of Interest through the Lens of an Overlapping-Generations Model By Martin Kuncl; Dmitry Matveev
  19. Cryptocurrency competition: An empirical test of Hayek's vision of private monies By Mayer, Fabian; Bofinger, Peter
  20. Regulatory Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model By Aicha Kharazi; Francesco Ravazzolo
  21. A Feasible Approach to Projecting Household Demand For The Digital Ruble in Russia By Vadim Grishchenko; Alexey Ponomarenko; Sergey Seleznev
  22. The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending By Jason Allen; Robert Clark; Jean-François Houde; Shaoteng Li; Anna Trubnikova
  23. Greenflation? By Olovsson, Conny; Vestin, David
  24. Assessing Monetary Policy Shocks to Inflation: The Case of Morocco By Mohamed Er-Rahmany; Fouad Ben Elhaj
  25. Cross-country price and inflation dispersion: retail network or national border? By Messner, Teresa; Rumler, Fabio; Strasser, Georg
  26. International Commodity Prices Transmission to Consumer Prices in Africa By Thibault Lemaire; Paul Vertier
  27. How Much Can the Fed’s Tightening Contract Global Economic Activity? By Julian di Giovanni; Neel Lahiri
  28. Euro Area inflation differentials: the role of fiscal policies revisited By Checherita-Westphal, Cristina; Leiner-Killinger, Nadine; Schildmann, Teresa
  29. Constrained liquidity provision in currency markets By Wenqian Huang; Angelo Ranaldo; Andreas Schrimpf; Fabricius Somogyi
  30. Stablecoins and the Financing of the Real Economy By Jean Barthélémy; Paul Gardin; Benoit Nguyen
  31. Got Milk? The Effect of Export Price Shocks on Exchange Rates By Hillary Stein

  1. 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)
    Abstract: Most economic decisions of economic agents are based upon expectations of inflation. Inflation expectations play an important role for the determination of inflation and the transmission of monetary policy. They are not observable and are inferred from alternative indicators. We show that all these measures generally fail to predict inflation. We also assess their anchoring and show that long-term expectations are better anchored to the inflation target than inflation expectations at shorter horizons. This paper was provided by the Policy Departmentfor 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 7 February 2022.
    Keywords: central bank, economic forecasting, euro area, inflation, monetary policy
    Date: 2022–01
  2. By: Gmeiner, Robert; Larson, Sven
    Abstract: The link between money creation and inflation has been theoretically demonstrated, but different inflation responses to Federal Reserve activity after the Great Recession and COVID recession showed the incomplete nature of the theory. We model a ``fiscal transmission mechanism'' whereby Federal Reserve purchases of Treasury securities lead to inflation as new dollars flow through fiscal deficits into the economy. In our model, other Federal Reserve activity generally lacks inflationary effects. Using a nonstructural vector autoregression approach, we test for the presence of this mechanism and offer near perfect predictions of the 2022 inflation rate using a time series extending back half a century. We explain the fiscal transmission mechanism and the reasons why other Federal Reserve activity lacks the same effects, and we propose an emphasis on controlling the money supply by limiting Federal Reserve purchases of Treasury securities as a better way to control inflation than setting an interest rate target.
    Keywords: inflation, transmission mechanism, monetary policy, fiscal policy, budget deficits
    JEL: E31 E58 E63 H63
    Date: 2023–02–04
  3. By: Ivan Hajdukovic (University of Barcelona)
    Abstract: This paper provides an empirical examination on the transmission mechanisms of conventional and unconventional monetary policies for two non-EMU countries, Switzerland and the United Kingdom, over the period 1990-2017. We investigate the role of stock prices and consumer expectations in the transmission of monetary policy. We propose two distinct structural VAR models. The model for the case of conventional monetary policy covers the pre-2009 period, while the model for the case of unconventional monetary policy covers the post-2009 period. The official bank policy rate and central bank's reserve assets are used as instruments for conventional and unconventional monetary policy. The analysis reveals that the inclusion of a forward-looking informational variable of near-term development in economic activity and a financial variable such as the stock prices is of key importance for the monetary policy assessment. We provide evidence for the existence of a consumer confidence channel in the transmission of conventional monetary policy. Moreover, the long-term government bond yields, the exchange rate and stock prices have an important role in the transmission of unconventional monetary policy. Our findings indicate that conventional and unconventional monetary policies have short-run expansionary effects in both countries by increasing output, consumption, investment, stock prices and wages, while reducing unemployment.
    Keywords: Conventional and unconventional monetary policies Consumer confidence Small open economy Stock market Vector autoregression JEL Classification: C32 E32 E52 F31 F41 G1, Conventional and unconventional monetary policies, Consumer confidence, Small open economy, Stock market, Vector autoregression JEL Classification: C32, E32, E52, F31, F41, G1
    Date: 2022–07
  4. By: Jorge Alvarez; Allan Dizioli
    Abstract: We document that past highly inflationary episodes are often characterized by a steeper inflationslack relationship. We show that model-generated data from a standard small Dynamic Stochastic General Equilibrium (DSGE) model can replicate this empirical finding when estimated with different expectation formation processes. When inflation becomes de-anchored and expectations drift, we can observe high inflation even with a mildly positive output gap in response to cost-push shocks. The results imply that we should not use an unconditioned (not controlling for expectations change) Phillips curve estimated in normal times to predict the cost of reining in inflation. Our optimal policy exercises prescribe early monetary policy tightening and then easing in the context of positive output gaps and inflation far above the central bank target.
    Keywords: DSGE; inflation dynamics; optimal monetary policy; forecasting and simulation; bayesian estimation
    Date: 2023–02–03
  5. By: Hiroyuki Kubota (University of California, Los Angeles); Mototsugu Shintani (The University of Tokyo)
    Abstract: We estimate the effects of monetary policy on the aggregate economy in Japan during the last three decades when the effective lower bound (ELB) on interest rates was occasionally binding. Using monetary policy surprises from the interest rate futures market as the external instrument to identify monetary policy shocks in the VAR model, we show that monetary policy has been effective in Japan for the entire sample period but its effect was more persistent in the ELB regime. Using a New Keynesian model with forward guidance, we further show that our empirical finding is consistent with theoretical predictions.
    Date: 2023–02
  6. By: M.V. Kazakova (The Russian Presidential Academy Of National Economy And Public Administration)
    Abstract: Today, trend inflation is one of the important components of monetary models, as well as an indicator of public confidence in the ongoing monetary policy. In addition, trend inflation is used when forecasting inflation over a long-term horizon. This explains the relevance of this work, which is aimed at illustrating the evolution of trend inflation concept (subject of the study), as well as determination of its place in macroeconomic models. A review of theoretical works analyzing the concept of trend inflation and its relationship with other macroeconomic indicators is aimed at achieving this goal. The study was conducted at the Center for the Study of Central Banking Problems as part of the RANEPA state assignment for 2021 using relevant academic literature and as the major source of information and such methods as descriptive, statistical, graphical analysis, a systematic approach, and comparative analysis. Analysis of trend inflation concept allows the authors to conclude that this indicator represents a long-term inflationary trend and is unobservable. In statistics, prices for food and raw materials characterized by high volatility, as well as the effects of changes in indirect taxes, are excluded from the indicator of general inflation in order to identify a long-term trend in the dynamics of the general price level. In addition, trend inflation concept is widely used in macroeconomic modeling. In the future, this review can serve as a starting point for an econometric estimation of trend inflation for the Russian economy; study of trend inflation factors in Russia; analysis of changes in the magnitude and volatility of this indicator over time; as well as formulation of recommendations for the Russian monetary authorities.
    Keywords: inflation, trend inflation, core inflation, inflation gap, inflation persistence, monetary policy, inflation targeting, New Keynesian Phillips Curve, macroeconomic modelling
  7. By: Mikhail Andreyev (Bank of Russia, Russian Federation; Russian Presidential Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA), Russian Federation); Andrey Polbin (Russian Presidential Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA), Russian Federatio; Gaidar Institute for Economic Policy, Russian Federation)
    Abstract: In this article, we study the optimal simple monetary policy rules under a Zero Lower Bound (ZLB) using a DSGE model. The modeled economy is open and highly dependent on the terms of trade (TOT). Economic dynamics is the result of a TOT shock and an external interest rate shock. Using impulse response functions, we show that the presence of the ZLB reduces the impact of positive external shocks. This means greater growth in real interest rates and lesser growth in consumption and production. The monetary authority minimizes the volatility of key macroeconomic indicators. The optimal parameters for the rule turn out to be such that the regulator de facto reduces the probability of being at the ZLB. At the ZLB, the regulator is less responsive to inflation changes, and the interest rate is more persistent. In the case of Russia, we have got low probability estimate of hitting the ZLB under the current monetary policy and a long-term value of the interest rate of 6%. The gap reaction parameter and interest rate persistence parameter for the current monetary policy are in the range of values for optimal monetary policy rules. The current CPI reaction parameter is much less than the optimal one. This implies a higher probability of hitting the ZLB in the optimum than under the current monetary policy. We also found that under current monetary policy, the likelihood of reaching the effective lower bound (ELB), defined by the alternative households' ability to save, is quite significant
    Keywords: DSGE models, zero lower bound, nonlinear models, optimal policy, monetary policy, terms of trade
    JEL: D58 E32 E52 E58
    Date: 2021–10
  8. By: Alina Evstigneeva (Bank of Russia, Russian Federation); Daniel Karpov (Bank of Russia, Russian Federation)
    Abstract: This study presents a novel approach to distinguishing the news that has the greatest impact on households’ perception of inflation in Russia. Narrowing down the long list of all news items to only the strongly negative requires taking into account the concept of rational inattentiveness by the implementation of a 'too costly to ignore' principle. The feature importance models return very close results about the high importance of three main factors: news about the acceleration of inflation and single prices, about economic crisis and recession, and about the devaluation of the ruble, which is closely related to geopolitics. We also report differences in 1) higher and lower income households' perception of inflation and 2) in the formation of expected and perceived inflation. With these findings, we shed more light on the nature of households’ perception of inflation, which might be useful for central bank communications, especially during crises.
    Keywords: : monetary policy, text analysis, inflation expectations
    JEL: D83
    Date: 2023–02
  9. By: Marco Del Negro; Julian di Giovanni; Keshav Dogra
    Abstract: We develop a two-sector New Keynesian model to analyze the inflationary effects of climate policies. Climate policies do not force a central bank to tolerate higher inflation, but may generate a tradeoff between the central bank's objectives for inflation and real activity. The presence and size of this tradeoff depends on how flexible prices are in the “dirty” and “green” sectors relative to the rest of the economy, and on whether climate policies consist of taxes or subsidies.
    Keywords: inflation; central bank's tradoffs; green transition
    JEL: E12 E31 E52 Q54
    Date: 2023–02–01
  10. By: Popov, Alexander; Steininger, Lea
    Abstract: We study how monetary policy affects local market competition in a union of countries ex-periencing 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). JEL Classification: E2, G1, G12
    Keywords: Competition, Eurozone, Low Interest Rates, Monetary Policy, Monetary Union
    Date: 2023–02
  11. By: Laser, Falk Hendrik; Weidner, Jan
    Abstract: During recent years, central banks have increased the levels of their international reserves at an unprecedented pace. In this paper, we introduce new country-specific reserve data and examine determinants of the composition of international reserves. Using a dataset of 36 countries (and the euro area) for the years from 1996 to 2016, we identify currency pegs and trade patterns as determinants of currency compositions. Our results emphasize the importance of transaction motives for the composition of currency reserves. The euro crisis appears to have been a setback for the euro, which temporarily seemed to challenge the US dollar as the most important international reserve currency and potentially impacted the determination of international reserve compositions.
    Date: 2022
  12. By: Andreeva, Desislava; Coman, Andra; Everett, Mary; Froemel, Maren; Ho, Kelvin; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Wong, Andrew; Wong, Eric; Żochowski, Dawid
    Abstract: We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centres – the United Kingdom, Hong Kong and Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-centre affiliates. We find that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors, especially for those banks that have only a weak deposit base in IFCs – and are thus relatively more exposed to NIRP in their headquarters. Using euro-area data, including bank-level data from France, we find that NIRP does not influence overall cross-border lending from banks’ headquarters’ economies, but NIRP does impair lending to financial sectors based in IFCs. This impairment is stronger for banks with a large deposit base in headquarter economies exposed to NIRP. JEL Classification: E52, F34, F36, F42, G21
    Keywords: bank lending, cross-border lending, International financial centres, monetary policy, negative interest rates, risk-taking
    Date: 2023–02
  13. By: Ales Marsal (National Bank of Slovakia); Katrin Rabitsch; Lorant Kaszab
    Abstract: Applications in modern macroeconomics increasingly require non-linear solution methods. Our paper studies the consequences of the widely used Calvo pricing mechanism in a non-linear world. We introduce the concept of the stability region as a non-linear counterpart to the determinacy region. We show that in non-linear models the Taylor principle is no longer sufficient for inflation stability and stable macroeconomic model moments. The presence of a self-reinforcing price-inflation spiral captured by the non-linear solution presents a new challenge for monetary policy in anchoring inflation expectations.
    JEL: E13 E31 E43 E44
  14. By: Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen
    Abstract: After moving slowly downward for the better part of four decades, central bank gold holdings have risen since the Global Financial Crisis. We identify 14 “active diversifiers, ” defined as countries that purchased gold and raised its share in total reserves by at least 5 percentage points over the last two decades. In contrast to the diversification of foreign currency reserves, which has been undertaken by advanced and developing country central banks alike, active diversifiers into gold are exclusively emerging markets. We document two sets of factors contributing to this trend. First, gold appeals to central bank reserve managers as a safe haven in periods of economic, financial and geopolitical volatility, when the return on alternative financial assets is low. Second, the imposition of financial sanctions by the United States, United Kingdom, European Union and Japan, the main reserve-issuing economies, is associated with an increase in the share of central bank reserves held in the form of gold. There is some evidence that multilateral sanctions imposed by these, and other countries have a larger impact than unilateral sanctions on the share of reserves held in gold, since the latter leave scope for shifting reserves into the currencies of other non-sanctioning countries.
    Keywords: International Reserves; Gold; Sanctions; aggregate gold share regression; gold appeal; share of gold; gold share; country level gold share regression; Gold reserves; Reserve assets; Gold prices; Global
    Date: 2023–01–27
  15. By: Janet Hua Jiang; Daniela Puzzello; Cathy Zhang
    Abstract: We develop an experimental framework to investigate the quantity theory of money and the real effects of inflation in an economy where money serves as a medium of exchange. We test the classical view that inflation reduces output and welfare by taxing monetary exchange. Inflation is engineered by constant money growth. We conduct three treatments, where the newly issued money is used to finance government spending, lump-sum transfers, and proportional transfers, respectively. Experimental results largely support theoretical predictions. Higher money growth leads to higher inflation. Output and welfare are significantly lower with government spending, and output is significantly lower with lump-sum transfers, while there are no significant real effects with proportional transfers. A deviation from theory is that the detrimental effect of money growth in our framework depends on the implementation scheme and is stronger with government spending than with lump-sum transfers.
    Keywords: Inflation and prices; Inflation: costs and benefits; Monetary policy
    JEL: C92 D83 E40
    Date: 2023–02
  16. By: Marco Del Negro; Julian di Giovanni; Keshav Dogra
    Abstract: Are policies aimed at fighting climate change inflationary? In a new staff report we use a simple model to argue that this does not have to be the case. The model suggests that climate policies do not force a central bank to tolerate higher inflation but may generate a trade-off between inflation and employment objectives. The presence and size of this trade-off depends on how flexible prices are in the “dirty” and “green” sectors relative to the rest of the economy, and on whether climate policies consist of taxes or subsidies.
    Keywords: inflation; climate policy; green transition
    JEL: E31
    Date: 2023–02–14
  17. By: Stefano Grassi; Francesco Ravazzolo; Joaquin Vespignani; Giorgio Vocalelli
    Abstract: This paper shows that the impact of the global money supply is disproportionally high for energy than for non-energy commodities prices. An increase in the global money supply for energy commodity prices results mostly in demand-pull inflation. However, for non-energy commodity prices, an increase in global money supply results in demand-pull inflation and cost-push inflation, as energy is a critical input for non-energy commodities. We introduce a Markov Switching framework with time-varying transition probabilities to quantify this effect. This macro-econometric model accounts for periods when the global money supply growth is slow, moderate, and fast. We find that the response to global money supply shocks is higher for energy than for non-energy commodity prices. We also find heterogeneous responses for both energy and non-energy commodities across regimes.
    Keywords: Global money supply, Energy and non-energy prices, Markov-Switching VAR
    JEL: C54 E31 F01 Q43
    Date: 2023–02
  18. By: Martin Kuncl; Dmitry Matveev
    Abstract: The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as population aging, declining productivity, rising government debt and inequality. Foreign factors are captured by changes in the global neutral real rate. We use the model to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate.
    Keywords: Economic models; Interest rates; Monetary policy
    JEL: E21 E22 E43 E50 E52 E58 F41
    Date: 2023–02
  19. By: Mayer, Fabian; Bofinger, Peter
    Abstract: We investigate monopolistic tendencies and the intensity of currency competition on the crypto market in the light of Hayek's "Denationalization of money". Interestingly, Hayek never considered differentiation and specialization by innovative private currencies could lead lasting currency competition instead of network effects. We argue that competition between private currencies could run on different functions of money, especially the function as a store of value and that as a means of exchange, which partly explains the differences in the set-up of private currencies that Hayek demanded and that of cryptocurrencies. Drawing on a large sample of 101 cryptocurrencies and a time frame from 2016 to 2022, we empirically examine the evolution and degree of competition on the crypto market, also taking changes in general crypto market structure into account. We find that competition is strong for unpegged cryptocurrencies that mostly compete as a speculative store of value. Competition is also strong for stablecoins when competing as a stable store of value. Competition is much less pronounced for the function as a means of exchange and network effects and monopolistic tendencies are more likely to be present on this sub-market.
    Keywords: Hayek, Cryptocurrencies, Functions of Money, Currency Competition, NetworkEffects, Monopol
    JEL: B25 D40 E42 E50 E51 L11
    Date: 2023
  20. By: Aicha Kharazi (Free University of Bozen-Bolzano, Italy); Francesco Ravazzolo (BI Norwegian Business School, Norway; Free University of Bozen-Bolzano, Italy; Rimini Centre for Economic Analysis)
    Abstract: In light of the high levels of systemic risks and the elevated probability of a crisis occurring, understanding the effectiveness of macro-prudential policies is becoming increasingly crucial. We incorporate a collateral-based macro-prudential policy into a two-agent New Keynesian model, this policy adjusts counter-cyclically to the state of the borrowing sector. We show that regulators accommodate high delinquency rates by allowing for tighter collateral requirements. An active macro-prudential policy amplifies the impact of a monetary policy shock on output and labor supply, and this policy emerges as a potential tool to prevent the risk of delinquency in the short run.
    Keywords: macro prudential policies, credit supply, collateral constraint, monetary policy
    JEL: E32 E44 G21
    Date: 2023–02
  21. By: Vadim Grishchenko (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Sergey Seleznev (Bank of Russia, Russian Federation)
    Abstract: We estimated a model of households’ usage of alternative payment instruments (cash and bank cards) using a new dataset from a survey of Russian households. In our modelling set-up, households’ preferences are determined by the instruments’ perceived attributes and hence their choice regarding payment methods depends on the differences across instruments in these attributes. The results indicate a statistically significant sensitivity of consumer choice to the perceived attributes. We employ the estimated model to evaluate the demand for CBDC depending on its expected design and consumers’ perception of it. We discuss several illustrative projections to demonstrate the application of the tool developed. The predicted utilisation of CBDC varies considerably depending on the attributes hypothesised, although under the conservative assumptions, the projected use of CBDC in household transactions is limited.
    Keywords: : Central Bank Digital Currency, Digital Ruble, payment instruments, ordered probit, banknotes, bank cards, Russia
    JEL: E42 E47 E50 E58
    Date: 2023–02
  22. By: Jason Allen; Robert Clark; Jean-François Houde; Shaoteng Li; Anna Trubnikova
    Abstract: We develop an experimental framework to investigate the quantity theory of money and the real effects of inflation in an economy where money serves as a medium of exchange. We test the classical view that inflation reduces output and welfare by taxing monetary exchange. Inflation is engineered by constant money growth. We conduct three treatments, where the newly issued money is used to finance government spending, lump-sum transfers, and proportional transfers, respectively. Experimental results largely support theoretical predictions. Higher money growth leads to higher inflation. Output and welfare are significantly lower with government spending, and output is significantly lower with lump-sum transfers, while there are no significant real effects with proportional transfers. A deviation from theory is that the detrimental effect of money growth in our framework depends on the implementation scheme and is stronger with government spending than with lump-sum transfers.
    Keywords: Financial institutions; Financial services; Market structure and pricing
    JEL: D D4 G G2 G21 L L2
    Date: 2023–02
  23. By: Olovsson, Conny (Research Department, Central Bank of Sweden); Vestin, David (Research Department, Central Bank of Sweden)
    Abstract: This paper examines the hypothesis of "Greenflation". We find that under flexible prices, the relative price adjustment of green and brown energy comes about without consequences for inflation. We extend the analysis to the case of sticky prices and wages and our findings continues to support the notion that a transition to a green economy may progress without too much worry about inflation, at least in the case where the fiscal measures are introduced in an orderly and well planned fashion.
    Keywords: Inflation; green transition; monetary policy; climate change
    JEL: E52 E58 Q43
    Date: 2023–02–01
  24. By: Mohamed Er-Rahmany (LIREFIMO - Laboratoire Interdisciplinaire de Recherche en Economie, Finance et Management des Organisations - FSJES-Fès - Faculté des sciences Juridiques, Economiques et Sociales de Fès); Fouad Ben Elhaj
    Keywords: monetary policy, channels of transmission, structural VAR., : Politique monétaire, canaux de transmission, VAR structurel.
    Date: 2022–11–30
  25. By: Messner, Teresa; Rumler, Fabio; Strasser, Georg
    Abstract: (Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region of Austria and Germany. Using transaction data on prices and quantities from a large household panel, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between these two regions. Even within multinational retail chains the prices of identical products on the two sides of the border differ on average by about 21%. These price differences are not very persistent indicating little arbitrage gain from undifferentiated cross-border shopping. Ensuing product-level inflation rates differ for only half of the chains. The results highlight the importance of the history-dependent evolution of distribution networks and of the structure of the sales organization as a driver of price and inflation heterogeneity. JEL Classification: D12, E31, D43, F15, F4
    Keywords: border effect, cross-border arbitrage, goods market integration, market power, price discrimination
    Date: 2023–02
  26. By: Thibault Lemaire (UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Paul Vertier (Banque de France - Banque de France - Banque de France)
    Abstract: Global commodity prices spikes can have strong macroeconomic effects, particularly in developing countries. This paper estimates the global commodity prices pass-through to consumer price inflation in Africa. Our sample includes monthly data for 48 countries over the period 2002m02-2021m04. We consider 17 commodity prices separately to take into account both the heterogeneity in price variations and the cross-correlations between them, and to depart from aggregate indices that use weights unrepresentative of consumption in African countries. Using local projections in a panel dataset, we find a maximum passthrough of 24%, and a long-run pass-through of about 20%, higher than usually found in the literature. We also consider country-specific regressions to test whether estimated pass-through are related to countries' observable characteristics.
    Keywords: Commodity prices, food prices, energy prices, inflation, pass-through, Africa
    Date: 2023–01–18
  27. By: Julian di Giovanni; Neel Lahiri
    Abstract: What types of foreign firms are most affected when the Federal Reserve raises its policy rate? Recent empirical research used cross-country firm level data and information on input-output linkages and finds that the impact on sales and investment spending is largest in sectors with exposure to trade in intermediate goods. The research also finds that financial factors drive differences, with U.S. monetary policy spillovers having a much smaller impact on firms that are less financially constrained.
    Keywords: U.S. monetary policy spillovers; Foreign firms; international production linkages; financial constraints
    JEL: E52 F0
    Date: 2023–02–13
  28. By: Checherita-Westphal, Cristina; Leiner-Killinger, Nadine; Schildmann, Teresa
    Abstract: This paper provides a comprehensive empirical analysis of the role of discretionary fiscal policy for inflation differentials across the 19 euro area countries over the period 1999-2019. The results confirm existing (older) literature that it is difficult to find robust evidence of the fiscal policy stance or impulse impacting directly on inflation differentials. We do find, however, support for an indirect effect of discretionary fiscal policy on inflation differentials working through the output gap channel. There is also some evidence that fiscal policy may be especially potent in influencing inflation differentials – with fiscal tightening cooling (and fiscal expansion increasing) inflation pressures – when the economy is above its potential. Finally, going from the overall fiscal stance or impulse to individual fiscal instruments, we find that value added tax (VAT) rate changes and public wage growth are statistically significant determinants of inflation differentials in our sample. JEL Classification: E31, E62, E63, F45
    Keywords: fiscal policy, inflation differentials, public wages, tax policy
    Date: 2023–02
  29. By: Wenqian Huang; Angelo Ranaldo; Andreas Schrimpf; Fabricius Somogyi
    Abstract: We study dealers’ liquidity provision in the currency market. We show that at times when dealers’ intermediation capacity is constrained their cost of liquidity provision increases disproportionately relative to dealer-provided volume. As a result, the elasticity of dealers’ liquidity provision drops by at least 80% relative to periods when they are unconstrained. We identify constrained periods based on leverage ratios, Value-at-Risk measures, credit default spreads, and debt funding costs. We interpret our novel empirical findings within a parsimonious model that sheds light on the key mechanisms of how liquidity provision by dealers tends to weaken when intermediary constraints are tightening.
    Keywords: currency markets, dealer constraints, market liquidity, foreign exchange, liquidity provision
    JEL: F31 G12 G15
    Date: 2023–02
  30. By: Jean Barthélémy; Paul Gardin; Benoit Nguyen
    Abstract: Stablecoins are crypto-assets that aim to maintain a stable value relative to a fiat currency. This paper documents one implication of their massive growth since 2020 for the financing of the real economy. The largest stablecoins manage their peg with the US dollar by holding short-term safe assets. We identify changes in the stablecoin demand for US dollardenominated commercial papers (CP) by exploiting cross-sectional and time-varying heterogeneity in the main tablecoins’ reserve assets policy. We show that CP issuers catered to the additional demand from stablecoins by issuing more, illustrating the implications of stablecoins for financial stability and the financing of the real economy.
    Keywords: : Crypto-Assets, Stablecoins, Financial Markets, Safe Assets
    JEL: G14 G23 G29
    Date: 2023
  31. By: Hillary Stein
    Abstract: I examine the effect of exogenous terms of trade shocks on an exchange rate by turning to New Zealand’s dairy auctions. Dairy is New Zealand’s largest export category, making up almost 20 percent of exports. Specifically, whole milk powder accounts for 6 to 11 percent of total exports, and its price is determined in twice-monthly auctions. I use event studies to quantify the impact of surprise auction results on the New Zealand dollar on a high-frequency basis. I find that a 1 percent increase in whole milk powder prices has a modest, but nevertheless significant, effect on the nominal exchange rate that does not seem to be explained by interest rate movements. Rather, the effect seems to be driven by a combination of two channels: a financial flows channel and a fundamental channel. The methodology developed here can potentially be applied to other commodity exporters.
    Keywords: exchange rates; commodity prices; terms of trade; event studies
    JEL: F31 F41 G14
    Date: 2022–12–01

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