nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒03‒20
48 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Credibility gains from communicating with the public: evidence from the ECB’s new monetary policy strategy By Ehrmann, Michael; Georgarakos, Dimitris; Kenny, Geoff
  2. To Demand or Not to Demand: On Quantifying the Future Appetite for CBDC By Mr. Marco Gross; Elisa Letizia
  3. The impact of demand and supply shocks on inflation. Evidence for the US and the Euro area By Dreger, Christian
  4. Exorbitant Privilege? On the Rise (and Rise) of the Global Dollar System By Perry Mehrling
  5. Firms’ inflation expectations and price-setting behaviour in Canada: Evidence from a business survey By Ramisha Asghar; James Fudurich; Jane Voll
  6. Analysis of the effect of e-commerce increase on inflation By Alina M. Grebenkina
  7. Euro area banks’ market power, lending channel and stability: the effects of negative policy rates By Altunbas, Yener; Avignone, Giuseppe; Kok, Christoffer; Pancaro, Cosimo
  8. Money Market Disconnect By Benedikt Ballensiefen; Angelo Ranaldo; Hannah Winterberg
  9. Non-bank lending during crises By Iñaki Aldasoro; Sebastian Doerr; Haonan Zhou
  10. International Commodity Prices Transmission to Consumer Prices in Africa By Thibault Lemaire; Paul Vertier
  11. The effects of a green monetary policy on firms financing costs By Andrea Bacchiocchi; Sebastian Ille; Germana Giombini
  12. Oil Prices Uncertainty, Endogenous Regime Switching, and Inflation Anchoring By Yoosoon Chang; Ana María Herrera; Elena Pesavento
  13. Heterogeneity of inflation in the euro area: more complicated than it seems By Christophe Blot; Jérôme Creel; François Geerolf; Sandrine Levasseur
  14. CBDC and financial stability By Ahnert, Toni; Hoffmann, Peter; Leonello, Agnese; Porcellacchia, Davide
  15. Foreign price shocks and inflation targeting: Effects on income and inflation inequality By Rolim, Lilian; Marins, Nathalie
  16. Determinants of interest in eNaira and financial inclusion information in Nigeria: role of Fintech, cryptocurrency and central bank digital currency By Ozili, Peterson K
  17. Giving up the euro can be a good and a bad idea By Thomas COUDERT; Blandine ZIMMER
  18. Divorcing money creation from bank loans: Revisiting the “100% money” proposal of the 1930s By Samuel Demeulemeester
  19. Money, Exchange rate and Wage Inequality By Ganguly, Shrimoyee
  20. Response of Inflation to the Climate Stress: Evidence from Azerbaijan By Yusifzada, Tural
  21. The puzzling change in the international transmission of U.S. macroeconomic policy shocks By Ilzetzki, Ethan; Jin, Keyu
  22. Robust frequency-based monetary policy rules By Dück, Alexander; Verona, Fabio
  23. Muth's Hypothesis Under Knightian Uncertainty: A Novel Account of Inflation Forecasts By Roman Frydman; Morten Nyboe Tabor
  24. Effects of foreign and domestic central bank government bond purchases in a small open economy DSGE model: Evidence from Sweden before and during the coronavirus pandemic By Akkaya, Yildiz; Belfrage, Carl-Johan; Di Casola, Paola; Strid, Ingvar
  25. A central bank digital currency for offline payments By Cyrus Minwalla; John Miedema; Sebastian Hernandez; Alexandra Sutton-Lalani
  26. The Asymmetric Impact of Economic Policy and Oil Price Uncertainty on Inflation: Evidence from Developed and Emerging Economies By Christina Anderl; Guglielmo Maria Caporale
  27. Inflation in the Time of Corona and War: The plight of the developing economies By Servaas Storm
  28. Long-run Discount Rates: Evidence from UK Repeat Sales Housing By Hang Lai; Stanimira Milcheva
  29. The Pandemic, Cash and Retail Payment Behaviour: Insights from the Future of Payments Database By Raphael Auer; Giulio Cornelli; Jon Frost; Raphael A. Auer
  30. Inflation, Business Cycle, and Monetary Policy: The Role of Inflationary Pressure By Masahiko Shibamoto
  31. Exchange rates, tariffs and prices in 1930s Britain By Chadha, Jagjit S.; Lennard, Jason; Solomou, Solomos; Thomas, Ryland
  32. Liquidity, Debt Denomination, and Currency Dominance By Antonio Coppola; Arvind Krishnamurthy; Chenzi Xu
  33. How Do Adaptive Learning Expectations Rationalize Stronger Monetary Policy Response in Brazil? By Hou Wang; Allan Dizioli
  34. Understanding Post-COVID Inflation Dynamics By Jesper Lindé; Mathias Trabandt; Martin Harding
  35. Central bank digital currency and bank earnings management using loan loss provisions By Ozili, Peterson K
  36. Job-to-Job Mobility and Inflation By Renato Faccini; Leonardo Melosi
  37. Age and market capitalization drive large price variations of cryptocurrencies By Arthur A. B. Pessa; Matjaz Perc; Haroldo V. Ribeiro
  38. Macroprudential Policies in Response to External Financial Shocks By Mr. Irineu E de Carvalho Filho; DingXuan Ng
  39. The effects of unconventional monetary policy on stock markets and household incomes in Japan By Israel, Karl-Friedrich; Sepp, Tim Florian; Sonnenberg, Nils
  40. Understanding Trend Inflation Through the Lens of the Goods and Services Sectors By Yunjong Eo; Luis Uzeda; Benjamin Wong
  41. Myth and Reality in the Great Inflation Debate: Supply Shocks and Wealth Effects in a Multipolar World Economy By Thomas Ferguson; Servaas Storm
  42. Crypto Trading and Bitcoin Prices: Evidence from a New Database of Retail Adoption By Raphael Auer; Giulio Cornelli; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Raphael A. Auer
  43. Global money supply and energy and non-energy commodity prices: A MS-TV-VAR approach By Grassi, Stefano; Ravazzolo, Francesco; Vespignani, Joaquin; Vocalelli, Giorgio
  44. Monetary Policy in the Presence of Supply Constraints: Evidence from German Firm-Level Data By Almut Balleer; Marvin Noeller
  45. Do High Interest Rates Reduce Inflation? A Test of Monetary Faith By Fix, Blair
  46. External constraint and procyclicality of monetary policy of the Bank of Central African States (BEAC) By Ngomba Bodi, Francis Ghislain
  47. Monetary policy and the drifting natural rate of interest By Daudignon, Sandra; Tristani, Oreste
  48. Passive monetary policy and active fiscal policy in a monetary union By Maćkowiak, Bartosz; Schmidt, Sebastian

  1. By: Ehrmann, Michael; Georgarakos, Dimitris; Kenny, Geoff
    Abstract: We show that the announcement of the ECB’s Strategy Review and the revision of its inflation target in summer 2021 went largely unnoticed by the wider public. Although it is hard to reach out to this group, we find evidence that communicating key elements of the strategy can enhance the perceived credibility that price stability will be maintained in the medium-term. Randomised information treatments reveal that providing additional explanations about monetary policy’s stabilising role has the strongest positive impact on credibility, boosting credibility also among the less financially literate and generating more persistent credibility gains, even after inflation increased. JEL Classification: E52, E58, E31
    Keywords: central bank communication, Consumer Expectations Survey, credibility, financial literacy, randomised control trial
    Date: 2023–02
  2. By: Mr. Marco Gross; Elisa Letizia
    Abstract: We set up a model of banks, the central bank, the payment system, and the surrounding private sector economic environment. It is a structural, choice-theoretic model which is deeply rooted in data. We use the model to conduct a structural counterfactual that introduces a Central Bank Digital Currency (CBDC) which is optionally interest-bearing. The model can be used to provide estimates of the emerging CBDC-in-total-money shares, the drop of deposit rate spreads to policy rates, the impact on reserve needs, the implied rotation of profits away from banks toward central banks, and the extent to which monetary policy pass-through may become stronger. We obtain upper bound estimates for the CBDC-in-money shares of about 25 percent and 20 percent, respectively for the U.S. and euro area, when CBDC would be remunerated at the policy rates and be perceived as “deposit-like” by the public. Actual take-up may likely be below such upper bound estimates. The model codes—to replicate all results and to apply them to other countries—are made available along with the paper.
    Keywords: Central bank digital currency; bank funding costs; central bank seigniorage; monetary policy pass-through; reinforcement learning; Authorss e-mail; bank agent; Central Bank digital currencies; Deposit rates; Central bank policy rate; Monetary base; Bank deposits; Global
    Date: 2023–01–20
  3. By: Dreger, Christian
    Abstract: After a long period of price stability, inflation returned to record levels in many parts of the world economy. This paper investigates the role of demand and supply shocks behind this process. Structural VAR models are specified for the US and the euro area. Shocks are identified by sign restrictions and external instruments. Demand shocks dominate in the US and can explain roughly 75 percent of the inflation experience. Supply side shocks like bottlenecks in global value chains account for the remaining 25 percent of the variance of inflation forecast errors. In the euro area, the shocks are balanced. Depending on the specification, supply shocks may even play a larger role over longer periods. Higher interest rates can tame inflation due to their adverse effects on demand. However, supply factors are beyond the control of central banks. Thus, monetary policy might become overly restrictive if the impact of the non-demand drivers is neutralized. Due to the larger weight of supply shocks in the euro area, the risk of stagflation, i.e. a longer period of high inflation and low output growth is especially high in that region. To return to the inflation target of around 2 percent, a resolution of supply side pressures is required in any case.
    Keywords: Inflation, global value chains, supply and demand shocks, external instruments
    JEL: E31 E52 F62
    Date: 2023–02–13
  4. By: Perry Mehrling (Boston University)
    Abstract: The global dollar system, though repeatedly reported to be on its last legs-most recently in the Global Financial Crisis of 2008, but most famously in the Nixon devaluation of 1971-has repeatedly instead consolidated and gone on to further geographical expansion (McCauley 2021). The key currency approach to international monetary economics, first put forward by John H. Williams in the aftermath of the 1931 devaluation of sterling, suggests that such resilience arises from the actions of market practitioners who appreciate the convenience of a global means of payment. So the question arises, why has the key currency approach remained a minority view, if not among practicing bankers then certainly among practicing academics? This paper proposes two main reasons—the discredit of monetary optimism during the depression, and the subsequent fateful adoption of Walrasian equilibrium as the frame for academic discussion after WWII.
    Keywords: key currency approach, Hahn Problem, sterling system, dollar system, exorbitant privilege.
    JEL: B2 F3 N1
    Date: 2023–01–09
  5. By: Ramisha Asghar; James Fudurich; Jane Voll
    Abstract: Canadian firms’ expectations for high inflation may be influencing their price setting, supporting strong price growth and delays in the transmission of monetary policy. Using data from the Business Outlook Survey, we investigate the reasons behind widespread price growth seen in Canada in 2021 and early 2022.
    Keywords: Firm dynamics; Inflation and prices; Monetary policy transmission; Recent economic and financial developments
    JEL: D22 E31
    Date: 2023–02
  6. By: Alina M. Grebenkina (The Russian Presidential Academy Of National Economy And Public Administration)
    Abstract: The anti-pandemic restrictions of recent years fueled an explosive growth of e-commerce in goods and services in Russia and worldwide. Therefore, the issue of macroeconomic consequences of the process of e-commerce growth is relevant. The subject of this research is economic transformation under the influence of the spread of e-commerce. The study aims to identify key theoretical mechanisms of how development of e-commerce influences main economic indicators, including inflation. It is based on the methods of generalization, systematization, descriptive and graphical analysis. According to the results of the study, e-commerce most notably influences aggregate factor productivity, the cost of production factors, consumer welfare, international trade volume and the cost of information for consumers. The study concludes that e-commerce causes predominantly downward pressure on prices and inflation, regardless of the mechanism of influence, because of a decrease in production and transport costs, reduction in the corporate monopoly power, and better product variety. This conclusion is also confirmed by some empirical countrywide studies. The scientific novelty of the research lies in systematization of the channels via which e-commerce influences various spheres of the economy. The study recommends considering the factor of downward pressure while conducting Russian monetary policy in the condition of continued e-commerce spread. A promising area of further research is the empirical verification of identified theoretical mechanisms of influence based on the data on e-commerce development in Russian regions.
    Keywords: e-commerce, inflation, information and communications technology, monetary policy
  7. By: Altunbas, Yener; Avignone, Giuseppe; Kok, Christoffer; Pancaro, Cosimo
    Abstract: This paper investigates to what extent the introduction of negative monetary policy rates altered competitive behaviour in the euro area banking sector. Specifically, it analyses the effect that negative policy rates had on euro area banks’ market power in comparison to banks that have not been subject to negative rates. The analysis, considering a sample of 4, 223 banks over the period 2011–2018 and relying on a difference-in-differences methodology, finds that negative monetary policy rates led to an increase in euro area banks’ market power. Furthermore, it shows that, during the negative interest rate policy period, change in banks’ competitive behaviour affected the bank lending channel and discouraged banks from taking excessive risks. JEL Classification: E44, E52, E58, G20, G21
    Keywords: Bank lending channel, Bank Stability, DiD, Lerner index, NIRP
    Date: 2023–02
  8. By: Benedikt Ballensiefen (University of St. Gallen - School of Finance); Angelo Ranaldo (University of St. Gallen; Swiss Finance Institute); Hannah Winterberg (University of St. Gallen)
    Abstract: A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank's deposit facility and assets’ eligibility for Quantitative Easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through.
    Keywords: Money Market, Segmentation, Deposit Facility, QE, Monetary Policy
    JEL: E40 E43 E50 E52 E58 G18
    Date: 2023–02
  9. By: Iñaki Aldasoro; Sebastian Doerr; Haonan Zhou
    Abstract: This paper shows that non-banks curtail their syndicated credit by significantly more than banks during crises, even after accounting for time-varying lender and borrower characteristics. We provide novel evidence that differences in the value of lending relationships explain most of the gap: unlike for banks, relationships with non-banks – whether measured by duration or intensity – do not improve borrowers' access to credit during crises. The rise of non-banks could therefore lead to a shift from relationship towards transaction lending and exacerbate the repercussions of financial crises.
    Keywords: Non-banks, syndicated loans, financial crises, financial stability, relationship lending
    JEL: F34 G01 G21 G23
    Date: 2023–02
  10. 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
  11. By: Andrea Bacchiocchi (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Sebastian Ille (Northeastern University London); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino Carlo Bo)
    Abstract: The monetary policy operations of a Central Bank (CB) involve allocation decisions when purchasing assets and taking collateral. A green monetary policy aims to steer or tilt the allocation of assets and collateral towards low-carbon industries, to reduce the cost of capital for these sectors in comparison to high-carbon ones. Starting from a corporate bonds purchase program (e.g. CSPP) that follows a carbon-neutral monetary policy, we analyze how a shift in the CB portfolio allocation towards bonds issued by low-carbon companies can favor green firms in the market. Relying on optimal portfolio theory, we study how the CB might include the risk related to the environmental sustainability of firms in its balance sheet. In addition, we analyze the interactions between the neutral or green CB re-balancing policy and the evolutionary choice (i.e. by means of expo- nential replicator dynamics) of a population of firms that can decide to be green or not according to bonds borrowing cost.
    Keywords: Monetary Policy; Optimal Portfolio Allocation; Environmental Economics; Interacting Agents; Evolutionary Dynamics
    JEL: E52 E58 G11 C61 C73 Q50
    Date: 2023
  12. By: Yoosoon Chang; Ana María Herrera; Elena Pesavento
    Abstract: Using a novel approach to model regime switching with dynamic feedback and interactions, we extract latent mean and volatility factors in oil price changes. We illustrate how the volatility factor constitutes a useful measure of oil market risk (or oil price uncertainty) for policy makers and analysts as it captures uncertainty not reflected in other economic/financial uncertainty measures. Then, in the context of a VAR, we investigate the role of oil price uncertainty in driving inflation expectations and inflation anchoring. We show that shocks to the mean factor lead to higher expected inflation and inflation disagreement among professional forecasters and households. In contrast, shocks to the volatility factor act as aggregate demand shocks in that they result in lower expected inflation, yet they do increase disagreement about future inflation among professional forecasters and, especially, among households. We also provide econometric evidence suggesting the proposed endogenous volatility switching model can outperform other regime switching models.
    Keywords: oil price volatility, endogenous regime switching, expected inflation, inflation anchoring
    JEL: C13 C32 E32 Q35
    Date: 2023–02
  13. 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); François Geerolf (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Sandrine Levasseur (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: We document different measures of inflation heterogeneity in the euro area. We ask what mostly drives this heterogeneity and whether there is cause for concern. Heterogeneity in headline inflation has increased substantially, and way more than heterogeneity in core inflation. We argue that core inflation dispersion is largely driven by small countries, where inflation reversion is the most likely. We then discuss about monetary policy as a limiting or aggravating factor of inflation heterogeneity.
    Date: 2022–11
  14. By: Ahnert, Toni; Hoffmann, Peter; Leonello, Agnese; Porcellacchia, Davide
    Abstract: What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a model of financial intermediation with an endogenously determined probability of a bank run, using global games. As an alternative to bank deposits, consumers can also store their wealth in remunerated CBDC issued by the central bank. Consistent with widespread concerns among policymakers, higher CBDC remuneration increases the withdrawal incentives of consumers, and thus bank fragility. However, the bank optimally responds to the additional competition by offering better deposit rates to retain funding, which reduces fragility. Thus, the overall relationship between CBDC remuneration and bank fragility is U-shaped. JEL Classification: D82, G01, G21
    Keywords: bank fragility, central bank digital currency, demand deposits, global games
    Date: 2023–02
  15. By: Rolim, Lilian; Marins, Nathalie
    Abstract: Foreign price shocks have significant effects on functional income distribution and on inflation inequality. By increasing prices in domestic currency that are linked to foreign prices, they increase the profit share in some sectors and reduce real wages, in particular of workers whose consumption basket is more sensitive to the price of certain goods (e.g. food prices for low-wage workers). Based on the conflicting-claims inflation literature, we propose a new extension to this framework by incorporating worker's heterogeneity (in terms of nominal income and consumption patterns) in an open economy model with an inflation-targeting regime. We investigate the impacts of foreign price shocks on income and inflation inequality and analyze how monetary policy influences these outcomes. Our simulation results indicate that a positive foreign price shock increases the profit share and the within-workers inequality (in real terms), since low-wage workers are more affected by these shocks. Yet, such effects are mediated by the strength of the monetary policy's transmission channels (domestic economic activity or nominal exchange rate), indicating that the monetary authority response may exacerbate or attenuate these distributive effects.
    Keywords: inflation, inequality, monetary policy, foreign shocks, transmission mechanisms
    JEL: D3 E12 E31 F41
    Date: 2023
  16. By: Ozili, Peterson K
    Abstract: The eNaira is the central bank digital currency of Nigeria. People who are interested in the eNaira and financial inclusion will seek information about eNaira and financial inclusion. Their interest in information about eNaira and financial inclusion will make it easier for them to adopt the eNaira and embrace other financial inclusion innovations such as financial technology (Fintech) and cryptocurrency. This paper investigates the determinants of interest in eNaira and financial inclusion information. Interest over time data were analyzed using descriptive statistics, correlation analysis and ordinary least squares (OLS) regression. The study also used the GMM and 2SLS regression methods for robustness. The findings of this study reveal that interest in Fintech and eNaira information are significant positive determinants of interest in financial inclusion information. Also, interest in financial inclusion is a significant positive determinant of interest in eNaira information. Furthermore, interest in Fintech information has a positive and significant correlation with interest in financial inclusion information. There is also a significant positive correlation between interest in central bank digital currency information and interest in Fintech information. The implication of the findings is that interest in information about new financial innovations, such as Fintech and eNaira, can stimulate interest in information about financial inclusion.
    Keywords: eNaira, Fintech, financial inclusion, central bank digital currency, cryptocurrency, information, innovation, innovation diffusion theory.
    JEL: E50 E51 E52 E58 E59
    Date: 2023–01–04
  17. By: Thomas COUDERT (LaRGE Research Center, Université de Strasbourg); Blandine ZIMMER (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper investigates whether Denmark, Sweden and the UK made the right choice in giving up the euro by examining the consequence of this decision on their GDP per capita. We use the synthetic control approach to create a counterfactual scenario of how their GDP per capita would have behaved if they had joined the euro area. Our estimates suggest that only Denmark would have benefited from the adoption of the euro. In contrast, for Sweden and the UK, until 2010, the euro would have had a zero or negligible positive effect on their GDP. From 2010 onwards, however, we observe a significant divergence between their GDP and the counterfactual, revealing that both countries would have lost out with the euro. Still, this effect is more significant for Sweden than for the UK.
    Keywords: Euro, per capita income, synthetic control method
    JEL: F15 F33 N14 O52
    Date: 2023
  18. By: Samuel Demeulemeester (TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The 2007-2008 global financial crisis has brought strong renewed interest in the "100% money" reform proposal, inherited from the 1930s, which aims at divorcing money creation from bank lending by imposing 100% reserves on current account deposits. This reform idea, however, is frequently subject to confusion, being sometimes likened to the idea of abolishing bank intermediation, sometimes to that of setting up a currency board, or yet mistaken for the more recent "narrow banking" proposal. For this reason, this article offers to clarify its concept and objectives, by revisiting the works of the authors of this proposal in the 1930s—Henry Simons, Lauchlin Currie and Irving Fisher in particular. After briefly recalling the history of the "100% money" idea, we present its main arguments, and then discuss its implications for the payment system, bank intermediation, and the institutional framework of money issuance. We conclude on the importance of a conceptual clarification of this reform idea in respect of the ongoing discussions about it.
    Abstract: La crise financière mondiale de 2007-2008 a conduit à un renouvellement d'intérêt marqué pour la proposition de réforme « 100% monnaie », héritée des années 1930, qui vise à dissocier la création monétaire des prêts bancaires en imposant 100% de réserves sur les dépôts en compte courant. Cette idée de réforme est cependant régulièrement sujette à confusion, étant tantôt assimilée à l'idée d'abolir l'intermédiation bancaire, tantôt à celle d'instaurer un currency board, lorsqu'elle n'est pas confondue avec la proposition plus récente du narrow banking. Pour cette raison, cet article entreprend d'en clarifier le concept et les objectifs, en revisitant les travaux des auteurs de cette proposition dans les années 1930 – Henry Simons, Lauchlin Currie et Irving Fisher notamment. Après un bref rappel historique de l'idée de « 100% monnaie », nous en présentons les principaux arguments, puis discutons de ses implications pour le système de paiement, l'intermédiation bancaire, et le cadre institutionnel de l'émission monétaire. Nous concluons sur l'importance d'une clarification conceptuelle de cette idée de réforme au regard des débats dont elle continue de faire l'objet.
    Keywords: 100% money, money creation, Irving Fisher, Chicago Plan, narrow banking, 100% monnaie, Plan de Chicago, création monétaire
    Date: 2022
  19. By: Ganguly, Shrimoyee
    Abstract: In the existing literature, several channels have been suggested for the effects of monetary policy on income inequality. This paper explores an altogether different channel by examining the effect of an expansionary monetary policy on wage inequality between skilled and unskilled workers in a competitive general equilibrium framework of a small open economy. This issue assumes relevance since monetary policies are often pursued by the central banks to manage exchange rate fluctuations under a managed float regime, which may adversely affect the wages to low skilled workers. Under optimal allocation of wealth over a portfolio of cash, domestic assets and foreign assets, we show that an increase in the domestic money supply affects the wage inequality primarily in two ways. One is through larger investment, capital formation and consequent endowment effect; the other is through changes in the nominal exchange rate. Expansionary monetary policy aggravates wage inequality if the labour to capital share required to produce the traditional export good exceeds that needed in the skill-based export good. A contractionary monetary policy in the foreign country on the other hand, minimises wage inequality if the capital-cost share in the export good Z is highest followed by that in the composite traded good and that in the non-traded good is least.
    Keywords: Monetary Policy, Wage inequality, Employment, Exchange rate, Portfolio choice.
    JEL: E24 E52 F11 F41
    Date: 2023–02
  20. By: Yusifzada, Tural
    Abstract: This research is the first study that analyzes the effects of climate change-related factors on the inflation environment in Azerbaijan during 2005-2020 and forecasts annual inflation for the 2021-2030 period. For this purpose, considering the possible long-run cointegration relation among variables and limited historical observations, the chain impact of temperature on agricultural producer prices is analyzed through the BVAR model. Additionally, the transition requirements to the effects of green energy on inflation are examined through the exchange rate pass-through. Since the aim of the research is to reveal climate change’s impact on the long-run trend of inflation, the study generates two climate scenarios for the 2021-2030 period and analyzes the inflation difference at the end of the horizon. According to the model results, climate change’s contribution to inflation is expected to be 1.3 percentage points (pp) in the long run with the baseline scenario, where climate-related variables follow their historical trends. On the other hand, climate contribution to inflation is estimated to be 2.2 pp in the worst scenario of climate change, where 1.2 °C additional temperature anomaly deteriorates the trends. The results imply that climate change is not only the determinant of seasonality but the trend of inflation. In light of these results, the paper highlights the importance of a well-developed climate action plan set by the government and monetary incentives for transitioning to a green environment set by the Central Bank of the Republic of Azerbaijan. This research is the first study that analyzes the effects of climate change-related factors on the inflation environment in Azerbaijan during 2005-2020 and forecasts annual inflation for the 2021-2030 period. For this purpose, considering the possible long-run cointegration relation among variables and limited historical observations, the chain impact of temperature on agricultural producer prices is analyzed through the BVAR model. Additionally, the transition requirements to the effects of green energy on inflation are examined through the exchange rate pass-through. Since the aim of the research is to reveal climate change’s impact on the long-run trend of inflation, the study generates two climate scenarios for the 2021-2030 period and analyzes the inflation difference at the end of the horizon. According to the model results, climate change’s contribution to inflation is expected to be 1.3 percentage points (pp) in the long run with the baseline scenario, where climate-related variables follow their historical trends. On the other hand, climate contribution to inflation is estimated to be 2.2 pp in the worst scenario of climate change, where 1.2 °C additional temperature anomaly deteriorates the trends. The results imply that climate change is not only the determinant of seasonality but the trend of inflation. In light of these results, the paper highlights the importance of a well-developed climate action plan set by the government and monetary incentives for transitioning to a green environment set by the Central Bank of the Republic of Azerbaijan.
    Keywords: inflation, climate, fossil fuel, green energy, BVAR, forecasting
    JEL: C32 E31 E37 E58 Q54
    Date: 2022–04–03
  21. By: Ilzetzki, Ethan; Jin, Keyu
    Abstract: We demonstrate a dramatic change over time in the international transmission of US monetary policy shocks. International spillovers from US interest rate policy have had a different nature since the 1990s than they did in post-Bretton Woods period. Our analysis is based on a panel of 21 high income and emerging market economies. Prior to the 1990s, the US dollar appreciated, and ex-US industrial production declined, in response to increases in the US Federal Funds Rate, as predicted by textbook open economy models. The past decades have seen a shift, whereby increases in US interest rates depreciate the US dollar but stimulate the rest of the world economy. Results are robust to several identification methods. We sketch a simple theory of exchange rate determination in face of interest-elastic risk aversion that rationalizes these findings.
    Keywords: international spillovers; exchange rates; P004253/1; 71828301
    JEL: N0 F3 G3
    Date: 2021–05–01
  22. By: Dück, Alexander; Verona, Fabio
    Abstract: Optimal monetary policy studies typically rely on a single structural model and identification of model-specific rules that minimize the unconditional volatilities of inflation and real activity. In our proposed approach, we take a large set of structural models and look for the model-robust rules that minimize the volatilities at those frequencies that policymakers are most interested in stabilizing. Compared to the status quo approach, our results suggest that policymakers should be more restrained in their inflation responses when their aim is to stabilize inflation and output growth at specific frequencies. Additional caution is called for due to model uncertainty.
    Keywords: monetary policy rules, policy evaluation, model comparison, model uncertainty, frequency domain
    JEL: C49 E32 E37 E52 E58
    Date: 2023
  23. By: Roman Frydman (Department of Economics, New York University); Morten Nyboe Tabor (Institute for New Economic Thinking)
    Abstract: We open a New Keynesian Phillips curve model to nonrecurring structural shifts in its parameters and propose a novel implementation of Muth's hypothesis to represent market participants' inflation expectations under Knightian uncertainty arising from such shifts. We refer to our approach as the Knight-Muth hypothesis (KMH). We find empirical support for KMH's core premise that processes driving inflation time-series and inflation forecasts undergo nonrecurring structural shifts. In contrast to the rational expectations hypothesis and behavioral specifications, KMH reconciles model consistency with an autonomous role for participants' expectations in driving aggregate outcomes and the influence of psychological factors on those expectations.
    Keywords: Expectations; Structural Shifts; Unforeseeable Change; Knightian Uncertainty; Muth's Hypothesis.
    JEL: D83 D84 E31 E37
    Date: 2022–12–01
  24. By: Akkaya, Yildiz (Monetary Policy Department, Central Bank of Sweden); Belfrage, Carl-Johan (Monetary Policy Department, Central Bank of Sweden); Di Casola, Paola (European Central Bank); Strid, Ingvar (Monetary Policy Department, Central Bank of Sweden)
    Abstract: This paper evaluates the macroeconomic effects of foreign and domestic central bank government bond purchases on the Swedish economy before and during the Corona pandemic using a small open economy DSGE model with segmented asset markets. In this model, the effects of foreign and domestic quantitative easing on the Swedish economy occur mainly through the exchange rate channel. The calibrated model is able to broadly capture the movements in foreign and domestic bond yields, capital flows and the Krona exchange rate associated with QE since the global financial crisis in 2007-2009. We find that foreign quantitative easing strengthened the Krona exchange rate and had modestly negative effects on Swedish GDP and inflation. Domestic QE, on the other hand, depreciated the Krona and had modestly positive macroeconomic effects. In 2015-2019 the government bond purchases on average depreciated the Krona by 2.5 percent, increased GDP by 0.2 percent, and increased inflation by 0.2 percentage points. The government bond purchases following the pandemic, which were more limited in size, had roughly half of these effects.
    Keywords: Unconventional Monetary Policy; Quantitative Easing; Effective Lower Bound; International Spillovers; DSGE model
    JEL: E44 E52 F41
    Date: 2023–02–01
  25. By: Cyrus Minwalla; John Miedema; Sebastian Hernandez; Alexandra Sutton-Lalani
    Abstract: Offline functionality is a key consideration for a potential CBDC. We describe the different types of offline functionality based on their duration outside of network connection—either intermittent (for short periods) or extended (for longer periods). We discuss the advantages and drawbacks of each and consider implications for end-user devices, system resilience and universal accessibility.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E E42 E58 O O31
    Date: 2023–02
  26. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper examines the asymmetric impact of economic policy uncertainty (EPU) and oil price uncertainty (OPU) on inflation by using a Nonlinear ARDL (NARDL) model, which is compared to a benchmark linear ARDL one. Using monthly data from the 1990s until August 2022 for a number of developed and emerging countries, we find that the estimated effects of both EPU and OPU shocks are larger when allowing for asymmetries in the context of the NARDL framework. Further, EPU shocks, especially negative ones, have a stronger impact on inflation than OPU ones and capture some of the monetary policy uncertainty, thereby reducing the direct effect of interest rate changes on inflation. Since EPU shocks reflect, at least to some extent, monetary policy uncertainty, greater transparency and more timely communications from monetary authorities to the public would be helpful to anchor inflation expectations.
    Keywords: inflation, asymmetries, NARDL, oil price uncertainty, economic policy uncertainty
    JEL: C22 E31 E60
    Date: 2023
  27. By: Servaas Storm (Delft University of Technology)
    Abstract: Reliance on established macroeconomic thinking is not of much use in trying to understand what to do in response to the constellation of forces driving up inflation and slowing down growth in these times of COVID-19 and war. This paper attempts to reduce the heat and turn up the light in the debate on the return of high inflation and looming stagflation by providing evidence-based answers to key (policy) questions concerning the return of high inflation: How close are the parallels between the current conjuncture and the 1970s? What are the differences? Does what is currently happening already amount to stagflation? Can central bankers engineer a 'soft landing' of their economies or are we already poised for a deep (global) recession? What are the likely spill-over effects of monetary tightening in the US on the emerging economies? What, if anything, can we learn from the monetary and fiscal policy experiences and policy mistakes of the 1970s? And, finally, are there alternative, less socially costly, ways to bring inflation down?
    Keywords: Monetary policy; inflation targeting; fiscal policy; inflation; global supply chains; COVID-19 crisis; stagflation; spill-over effects to emerging economies.
    JEL: E0 E5 E6 E62 O23
    Date: 2022–10–31
  28. By: Hang Lai; Stanimira Milcheva
    Abstract: This paper investigates the term structure of discount rates over the very long run, using the repeat-sales housing transactions and the unique housing contract of leaseholds in England and Wales. We estimate the price discounts and price appreciation discounts for 0-300 years leaseholds maturities relative to very long-run leaseholds and deprive the implied discount rates. We apply hedonic and augmented repeat sales regression for our empirical analysis under various types of restrictions. We find the results support the declining discount rate schedule, implying the benefit of the far future should be discounted at very low rates. In addition, although the declining trend remains consistent, poor and rich region have a different reaction in terms of QE. Before QE, the difference in the average discount rate in the two regions is only 0.2%. It increases to 2.1% during QE, with households in the rich region applying a significantly low average discount rate of 1%, suggesting that monetary policy could affect households’ preference of riskiness, especially households in the rich region.
    Keywords: Asset Pricing; Declining Discount Rates; Hedonic Model; Repeat Sales Model
    JEL: R3
    Date: 2022–01–01
  29. By: Raphael Auer; Giulio Cornelli; Jon Frost; Raphael A. Auer
    Abstract: The Covid-19 pandemic has been a shock to retail payment behaviour. How have the changes differed across countries? What do they imply for the future of cash and digital payments? We assemble a new “Future of Payments” database on retail payment behaviour for up to 95 countries over September 2019 to June 2022. We compare this with measures of the severity of the Covid-19 pandemic, using variation in the timing of waves of cases, changes in mobility and lockdown measures across countries. We find that card-not-present payments, payment app downloads and the volume of cash in circulation all rose in weeks of more stringent lockdowns. Changes were less pronounced in countries with higher mobile penetration. However, recent data suggest that some effects reversed once lockdowns were eased, and mobility rebounded.
    Keywords: retail payments, cash, Covid-19 pandemic, digital innovation
    JEL: E42 I18 O32 O33
    Date: 2023
  30. By: Masahiko Shibamoto (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN)
    Abstract: A novel empirical framework is proposed to analyze the causal relationships among future inflation, the business cycle, and monetary policy. It measures inflationary pressures as anticipated shocks to future inflation caused by changes in some predictors of inflation in the structural vector autoregressive model. Empirical results reveal that identified inflationary pressures represent demand-pull factors in inflation dynamics and act as driving forces for stochastic changes in trend inflation. Furthermore, the economic significance of inflationary pressures hinges on the systematic monetary policy responses to them. The results indicate that proactive policy reactions to inflation forecasts are crucial for achieving macroeconomic stability.
    Keywords: Inflationary pressure; Business cycle; Monetary policy; Vector autoregressive model; Anticipated shock
    JEL: C32 E31 E32 E52 E58
    Date: 2023–03
  31. By: Chadha, Jagjit S.; Lennard, Jason; Solomou, Solomos; Thomas, Ryland
    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: 2023–02–01
  32. By: Antonio Coppola; Arvind Krishnamurthy; Chenzi Xu
    Abstract: We provide a liquidity-based theory for the dominant use of the US dollar as the unit of denomination in global debt contracts. Firms need to trade their revenue streams for the assets required to extinguish their debt obligations. When asset markets are illiquid, as modeled via endogenous search frictions, firms optimally choose to denominate their debt in the unit of the asset that is easiest to obtain. This gives central importance to the denomination of government-backed assets with the largest safe, liquid, short-term float and to financial market institutions that facilitate safe asset creation. Equilibria with a single dominant currency emerge from a positive feedback cycle whereby issuing in the more liquid denomination endogenously raises its liquidity, incentivizing more issuance. We rationalize features of the current dollar-dominant international financial architecture and relate our theory to historical experiences, such as the prominence of the Dutch florin and pound sterling, the transition to the dollar, and the ongoing debate about the potential rise of the Chinese renminbi.
    JEL: E40 F33 G15 N20
    Date: 2023–02
  33. By: Hou Wang; Allan Dizioli
    Abstract: This paper estimates a standard Dynamic Stochastic General Equilibrium (DSGE) model that includes a wage and price Phillip's curves with different expectation formation processes for Brazil and the USA. Other than the standard rational expectation process, we also use a limited rationality process, the adaptive learning model. In this context, we show that the separate inclusion of a labor market in the model helps to anchor inflation even in a situation of adaptive expectations, a positive output gap and inflation above target. The estimation results show that the adaptive learning model does a better job in fitting the data in both Brazil and the USA. In addition, the estimation shows that expectations are more backward-looking and started to drift away sooner in 2021 in Brazil than in the USA. We then conduct optimal policy exercises that prescribe early monetary policy tightening 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.; learning expectation; inflation expectation; wages expectation; Inflation; Output gap; Real wages; Wage gap; Central bank policy rate; Global
    Date: 2023–01–27
  34. By: Jesper Lindé; Mathias Trabandt; Martin Harding
    Abstract: We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the Post-Covid period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroskedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is high.
    Keywords: Inflation dynamics; inflation risk; monetary policy; linearized model; nonlinear model; real rigidities; cost-push shock; nonlinear Phillips curve; inflation-output gap trade-off; Inflation; Output gap; Central bank policy rate; Demand elasticity; Interest rate floor; Global
    Date: 2023–01–20
  35. By: Ozili, Peterson K
    Abstract: This paper investigates the role of central bank digital currency (CBDC) in bank earnings management, and focus on how CBDC activity might influence banks to engage in accrual earnings management using loan loss provisions (LLPs) and the implications for earnings quality. I show that banks will use accruals, such as loan loss provisions, to manage earnings when CBDC-induced bank disintermediation leads to a reduction in bank deposits, a reduction in bank lending and a likely reduction in reported earnings. Bank managers will mitigate the reduction in reported earnings by lowering discretionary LLPs to increase reported earnings.
    Keywords: banks, earnings management; central bank digital currency, loan loss provisions, CBDC, disintermediation, accruals, income smoothing, migration, earnings quality, income smoothing.
    JEL: E50 E51 E52 E58 E59
    Date: 2023
  36. By: Renato Faccini; Leonardo Melosi
    Abstract: The low rate of inflation observed in the U.S. over the past decade is hard to reconcile with traditional measures of labor market slack. We develop a theory-based indicator of interfirm wage competition that can explain the missing inflation. Key to this result is a drop in the rate of on-the-job search, which lowers the intensity of interfirm wage competition to retain or hire workers. We estimate the on-the-job search rate from aggregate labor-market flows and show that its recent drop is corroborated by survey data. During "the great resignation", the indicator of interfirm wage competition rose, raising inflation by around 1 percentage point during most of 2021.
    Keywords: Missing inflation; labor market slack; Phillips curve; employment-to-employment rate; micro data
    JEL: E31 E37 C32
    Date: 2023–01–19
  37. By: Arthur A. B. Pessa; Matjaz Perc; Haroldo V. Ribeiro
    Abstract: Cryptocurrencies are considered the latest innovation in finance with considerable impact across social, technological, and economic dimensions. This new class of financial assets has also motivated a myriad of scientific investigations focused on understanding their statistical properties, such as the distribution of price returns. However, research so far has only considered Bitcoin or at most a few cryptocurrencies, whilst ignoring that price returns might depend on cryptocurrency age or be influenced by market capitalization. Here, we therefore present a comprehensive investigation of large price variations for more than seven thousand digital currencies and explore whether price returns change with the coming-of-age and growth of the cryptocurrency market. We find that tail distributions of price returns follow power-law functions over the entire history of the considered cryptocurrency portfolio, with typical exponents implying the absence of characteristic scales for price variations in about half of them. Moreover, these tail distributions are asymmetric as positive returns more often display smaller exponents, indicating that large positive price variations are more likely than negative ones. Our results further reveal that changes in the tail exponents are very often simultaneously related to cryptocurrency age and market capitalization or only to age, with only a minority of cryptoassets being affected just by market capitalization or neither of the two quantities. Lastly, we find that the trends in power-law exponents usually point to mixed directions, and that large price variations are likely to become less frequent only in about 28\% of the cryptocurrencies as they age and grow in market capitalization.
    Date: 2023–02
  38. By: Mr. Irineu E de Carvalho Filho; DingXuan Ng
    Abstract: This paper examines how countries use Macroprudential Policies (MaPs) to respond to external shocks such as US monetary policy surprises or fluctuations in capital flows. Constructing a model of a small open economy with financial frictions and a MaP authority that adjusts loan to value (LTV) ratio limits on borrowers and capital adequacy ratio (CAR) limits on banks, we show that using MaPs where stochastic external financial shocks are present entails a trade-off between macro-financial volatility and GDP growth. The terms of the trade-off are a function of a few country characteristics that amplify financial channels of external monetary shocks. Estimating MaP reaction functions for a panel of 41 countries in the period 2000–2017, we find that countercyclical macroprudential policy in response to surprise US monetary tightening is more likely for countries with net short currency mismatches (that is, foreign currency denominated liabilities larger than foreign currency denominated assets), consistent with the model’s predictions. The paper also finds that domestic credit and interest rates are more insulated from US monetary tightening for countries that employ MaPs countercyclically.
    Keywords: Macroprudential policy; external shocks; loan to value; figures entry; map authority; Model simulation; foreign currency; interest rate shock; bank profit; Credit; Real exchange rates; Financial statements; Bank credit; Self-employment; Global
    Date: 2023–01–20
  39. By: Israel, Karl-Friedrich; Sepp, Tim Florian; Sonnenberg, Nils
    Abstract: In this study, we investigate the impact of monetary policy on Japanese household incomes using the Family Income and Expenditure Survey. Our analysis focuses on the savings and income structure of households, and covers the period from Q1 2007 to Q2 2021. We find that households in the highest income brackets have a higher proportion of their savings invested in stocks, while middle and lower income households hold a greater share of their savings in bank deposits. Our hypothesis is that the Bank of Japan's monetary policies have boosted stock markets in particular, leading to disproportionate benefits for high-income households through capital gains and dividends. Using local projections, we first identify a positive, lasting cumulative effect of both conventional and unconventional monetary expansion on Japanese stock markets. We then examine how stock market performance impacts household incomes, and find that the effect is strongest for high-income households, decreases for middle-income households, and disappears for lower-income households. Our results suggest that monetary policy may have contributed to the persistent growth in income inequality in Japan, as measured by metrics such as the Gini coefficient and top-to-bottom income ratios.
    Keywords: monetary policy, inequality, Japan, household income
    JEL: D31 D63 E52
    Date: 2023
  40. By: Yunjong Eo (Korea University; Department of Economics; Anam-dong, Sungbuk-gu; Seoul 02841); Luis Uzeda (Bank of Canada, 234 Wellington Ave W, Ottawa, ON, K1A 0H9, Canada); Benjamin Wong (Department of Econometrics and Business Statistics, Monash University, Caulfield East, VIC 3145, Australia)
    Abstract: We distinguish between the goods and services sectors in an unobserved components model of U.S. inflation. We find that prior to the early 1990s, both sectors contributed to volatility of aggregate trend inflation, while since then, this has been predominantly driven by the services sector, with the trend in goods inflation being essentially flat. We document that the large reduction in the volatility of the trend for goods inflation has been the most important driver of the decline in the volatility in aggregate trend inflation reported by Stock and Watson (2007). Our results appear robust to COVID- 19 inflation developments.
    Keywords: sectoral trend inflation; unobserved components model; disaggregated inflation
    JEL: C11 C32 E31 E52
    Date: 2023
  41. By: Thomas Ferguson (Institute for New Economic Thinking); Servaas Storm (Delft University of Technology)
    Abstract: This paper critically evaluates debates over the causes of U.S. inflation. We first show that claims that the Biden stimulus was the major cause of inflation are mistaken: the key data series - stimulus spending and inflation - move dramatically out of phase. While the first ebbs quickly, the second persistently surges. We then look at alternative explanations of the price rises. We assess four supply side factors: imports, energy prices, rises in corporate profit margins, and COVID. We argue that discussions of COVID's impact have thus far only tangentially acknowledged the pandemic's far-reaching effects on labor markets. We conclude that while all four factors played roles in bringing on and sustaining inflation, they cannot explain all of it. There really is an aggregate demand problem. But the surprise surge in demand did not arise from government spending. It came from the unprecedented gains in household wealth, particularly for the richest 10% of households, which we show powered the recovery of aggregate US consumption expenditure especially from July 2021. The final cause of the inflationary surge in the U.S., therefore, was in large measure the unequal (wealth) effects of ultra-loose monetary policy during 2020-2021. This conclusion is important because inflationary pressures are unlikely to subside soon. Going forward, COVID, war, climate change, and the drift to a belligerently multipolar world system are all likely to strain global supply chains. Our conclusion outlines how policy has to change to deal with the reality of steady, but irregular supply shocks. This type of inflation responds only at enormous cost to monetary policies, because it arises mostly from supply-side difficulties that require targeted solutions. But when supply plummets or becomes more variable, fiscal policy also has to adapt: existing explorations of ways to steady demand over the business cycle have to embrace much bolder macroeconomic measures to control over-spending when supply is temporarily constrained.
    Keywords: Monetary policy; fiscal policy; inflation; wealth effect; global supply chains; COVID-19; supply shocks; multipolar world economy, care economy, labor markets
    JEL: E0 E5 E6 E62 O23 I12 J08
    Date: 2023–01–01
  42. By: Raphael Auer; Giulio Cornelli; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Raphael A. Auer
    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. We confirm these findings by exploiting two exogenous price shocks: the crackdown of Chinese authorities on crypto mining in mid-2021 and the social unrest in Kazakhstan in early 2022. Moreover, we find that when prices rise retail investors buy, while the largest holders sell — making a return at the smaller users’ expense. 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: 2023
  43. By: Grassi, Stefano (University of Rome Tor Vergata, Italy); Ravazzolo, Francesco (BI Norwegian Business School); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania); Vocalelli, Giorgio (University of Rome Tor Vergata, Italy)
    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 timevarying 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
  44. By: Almut Balleer; Marvin Noeller
    Abstract: Using firm-level survey data from Germany, this paper asks how do supply constraints propagate monetary policy shocks? To answer this question, we first offer a general discussion on the measurement of supply constraints. We show that capacity utilization, a widely accepted measure of bottlenecks and slack, is only an imperfect measure for supply constraints as a whole. Consequently, we distinguish between input and capacity constraints and show that this distinction is crucial to understand the propagation of monetary policy in the presence of supply constraints: the probability to increase prices rises sharply for input constraint firms in response to an expansionary monetary policy shock, independent of their level of capacity utilization. This result challenges a recent literature that argues that capacity utilization is a sufficient statistic to understand the propagation of aggregate shocks in the presence of production limitations.
    Keywords: supply constraints, capacity utilization, price setting, local projections, monetary policy
    JEL: E31 E52 C22
    Date: 2023
  45. By: Fix, Blair
    Abstract: Whenever inflation rears its head, the call soon comes to raise interest rates. The rationale is simple. Higher interest rates put a damper on the supply of money. And this monetary clamp slows inflation. It’s so intuitive that it must be true. Or is it? As the Reverend Brooke observes, it takes a person of true conviction to ignore apparent contradictions. As such, this post is designed to test your monetary faith. According to monetary orthodoxy, higher interest rates reduce inflation. Yet the evidence demonstrates that the opposite is true: higher interest rates are associated with higher inflation. With this evidence in mind, I invite you to read on. Put your monetary faith to the fire and see if it can survive.
    Keywords: interest rate, inflation, Milton Friedman, monetarism, monetary policy
    JEL: E43 E52 E31 E4
    Date: 2023
  46. By: Ngomba Bodi, Francis Ghislain
    Abstract: Monetary policies are known as procyclical in developing countries. For instance, there exists a consensus on the main factors of this monetary policy procyclicality: (i) procyclicality of capital flows in emerging markets, and (ii) weak institutional framework in Sub-Saharan African countries. However, hard peg regime requirements (in terms of FX reserves level to possess) and the importance of terms of trade shocks in Franc Zone countries prompts us to reconsider this debate and to explore other factors, especially for central African countries. In this paper, we analyse the important role of external constraint (FX reserves to imports ratio, the de facto nominal anchor) in the BEAC’s monetary policy procyclicality. Using a general equilibrium model with some structural features of central African economies, we demonstrate that: (i) a monetary shock has a more volatile effects on real variables in the current monetary policy framework than in an Inflation Targeting (IT) regime, (ii) the current monetary policy framework in Central Africa suggest a monetary tightening following a negative macroeconomic shock, and (iii) the delayed restrictive reaction of central bank following a negative oil shock induce additional macroeconomic costs. This results suggest: (i) to include the question of monetary policy procyclicality in the agenda of monetary reforms, and (ii) to consider the possibility of another nominal anchor for BEAC’s monetary policy which combines the monetary policy’s countercyclicality and the possibility to defend the currency.
    Keywords: procyclicality, monetary policy procyclicality, external constraint, business cycles fluctuations, DSGE, hard peg regime
    JEL: E32 E42 E52 E58
    Date: 2022–01–25
  47. By: Daudignon, Sandra; Tristani, Oreste
    Abstract: Empirical analyses starting from Laubach and Williams (2003) find that the natural rate of interest is not constant in the long-run. This paper studies the optimal response to stochastic changes of the long-run natural rate in a suitably modified version of the new Keynesian model. We show that, because of the zero lower bound (ZLB) on nominal interest rates, movements towards zero of the long-run natural rate cause an increasingly large downward bias in expectations. To offset this bias, the central bank should aim to keep the real interest rate systematically below the long-run natural rate, as long as policy is not constrained by the ZLB. The neutral rate – the level of the policy rate consistent with stable inflation and the natural rate at its long-run level – will be lower than the long-run natural rate. This is the case both under optimal policy, and under a price level targeting rule. In the latter case, the neutral rate is equal to zero as soon as the long-run natural rate falls below 1%. JEL Classification: C63, E31, E52
    Keywords: commitment, liquidity trap, New Keynesian, nonlinear optimal policy, zero lower bound
    Date: 2023–02
  48. By: Maćkowiak, Bartosz; Schmidt, Sebastian
    Abstract: How is the price level determined in a monetary union when the common monetary policy pegs the nominal interest rate? How are the price levels in the member countries determined? We extend the fiscal theory of the price level to the case of a heterogenous monetary union. Price level determinacy follows if fiscal policy at the level of the union as a whole is active. Different combinations of national fiscal policies and a common fiscal policy with “Eurobonds” amount to active fiscal policy for the union, but can have very different implications for the effects of fiscal and monetary policy. We propose how to coordinate the national policies and the common policy for union-wide policy to be active. JEL Classification: E31, E63, F45
    Keywords: Eurobonds, monetary union, fiscal rules, fiscal theory of the price level
    Date: 2023–02

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