nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒05‒01
27 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. CBDC policies in open economies By Andrej Sokol; Michael Kumhof; Marco Pinchetti; Phurichai Rungcharoenkitkul
  2. Central Bank Forecasting: A Survey By Carola Conces Binder; Rodrigo Sekkel
  3. What consistent responses on future inflation by consumers can reveal By Sarah Miller; Patrick Sabourin
  4. Optimal Disinflation and Reflation By Michl, Thomas R.
  5. Does External Debt Drive Inflation in Sudan? Evidence from Symmetric and Asymmetric ARDL approaches By Sharaf, Mesbah Fathy; Shahen, Abdelhalem Mahmoud
  6. How Different is Euro Area and US Inflation? By Aydin Yakut, Dilan
  7. Identification of Systematic Monetary Policy By Lukas Hack; Klodiana Istrefi; Matthias Meier
  8. The Transmission of US Monetary Policy Shocks The Role of Investment & Financial Heterogeneity By Santiago Camara; Sebastian Ramirez Venegas
  9. Impact of TLTRO III on bank lending: The Slovak experience By Juraj Falath; Alena Kissova; Adriana Lojschova
  10. The Effects of Unconventional Monetary Policy on Stock Markets and Household Incomes in Japan By Karl-Friedrich Israel; Tim Florian Sepp; Nils Sonnenberg
  11. How to Cure Inflation By Maher, Ronan
  12. Monetary policy interest rate rule in a CGE model By Galindev, Ragchaasuren; Decaluwé, Bernard
  13. Do non-banks need access to the lender of last resort? Evidence from fund runs By Breckenfelder, Johannes; Hoerova, Marie
  14. A Move Toward a ‘Crawling Peg’ Exchange Rate System in 2023 By Oyadeyi, Olajide
  15. Inflation in Nigeria – are the authorities doing enough to combat the existing problem? By Oyadeyi, Olajide
  16. Inflation Distorts Relative Prices: Theory and Evidence By Klaus Adam; Andrey Alexandrov; Henning Weber
  17. Supply Drivers of the US Inflation Since the Pandemic By Serdar Kabaca; Kerem Tuzcuoglu
  18. The systemic instability of ballooning Global Liquidity as a symptom of the worsening of the Triffin Dilemma By Christian Ghymers
  19. Inflation forecasting with attention based transformer neural networks By Maximilian Tschuchnig; Petra Tschuchnig; Cornelia Ferner; Michael Gadermayr
  20. Real exchange rate and international reserves in the era of financial integration. By Joshua Aizenman; Sy-Hoa Ho; Luu Duc Toan Huynh; Jamel Saadaoui; Gazi Salah Uddin
  21. Intraday liquidity around the world By Biliana Alexandrova Kabadjova; Anton Badev; Saulo Benchimol Bastos; Evangelos Benos; Freddy Cepeda- Lopéz; James Chapman; Martin Diehl; Ioana Duca-Radu; Rodney Garratt; Ronald Heijmans; Anneke Kosse; Antoine Martin; Thomas Nellen; Thomas Nilsson; Jan Paulick; Andrei Pustelnikov; Antoine Francisco Rivadeneyra; Mario Rubem do Coutto Bastos; Sara Testi
  22. The U.S. Dollar as an International Currency and Its Economic Effects: Working Paper 2023-04 By Daniel Fried
  23. Labor Market Effects of Monetary Policy Across Workers and Firms By Andreas Gulyas; Matthias Meier; Mykola Ryzhenkov
  24. Effects of the Extraordinary Measures Implemented by Banco de México during the COVID-19 Pandemic on Financial Conditions By Alba Carlos; Cuadra Gabriel; Ibarra Raúl
  25. Financial asymmetries between Euro area and the United States: An International Political Economy Perspective By Audrey Allegret Sallenave; Jean-Pierre Allegret; Dalia Ibrahim
  26. Foreign Exchange Swap Liquidity By Peteris Kloks; Edouard Mattille; Angelo Ranaldo
  27. Modelling Determinants of Cryptocurrency Prices: A Bayesian Network Approach By Rasoul Amirzadeh; Asef Nazari; Dhananjay Thiruvady; Mong Shan Ee

  1. By: Andrej Sokol; Michael Kumhof; Marco Pinchetti; Phurichai Rungcharoenkitkul
    Abstract: We study the consequences for business cycles and welfare of introducing an interest-bearing retail CBDC, competing with bank deposits as medium of exchange, into an estimated 2-country DSGE environment. According to our estimates, financial shocks account for around half of the variance of aggregate demand and inflation, and for the bulk of the variance of financial variables. CBDC issuance of 30% of GDP increases output and welfare by around 6% and 2%, respectively. An aggressive Taylor rule for the interest rate on reserves achieves welfare gains of 0.57% of steady state consumption, an optimized CBDC interest rate rule that responds to a credit gap achieves additional welfare gains of 0.44%, and further gains of 0.57% if accompanied by automatic fiscal stabilizers. A CBDC quantity rule, a response to an inflation gap, CBDC as generalized retail access to reserves, and especially a cash-like zero-interest CBDC, yield significantly smaller gains. CBDC policies can substantially reduce the volatilities of domestic and cross- border banking flows and of the exchange rate. Optimal policy requires a steady state quantity of CBDC of around 40% of annual GDP.
    Keywords: central bank digital currencies, monetary policy, bank deposits, bank loans, monetary frictions, money demand, money supply, credit creation
    JEL: E41 E42 E43 E44 E52 E58 F41
    Date: 2023–04
  2. By: Carola Conces Binder; Rodrigo Sekkel
    Abstract: Central banks’ forecasts are important monetary policy inputs and tools for central bank communication. We survey the literature on forecasting at the Federal Reserve, European Central Bank, Bank of England and Bank of Canada, focusing especially on recent developments. After describing these central banks’ forecasting frameworks, we discuss the literature on central bank forecast evaluation and new tests of unbiasedness and efficiency. We also discuss evidence of central banks’ informational advantage over private sector forecasters—which appears to have weakened over time—and how central bank forecasts may affect private sector expectations even in the absence of an informational advantage. We discuss how the Great Recession led central banks to evaluate their forecasting frameworks and how the COVID-19 pandemic has further challenged central bank forecasting. Finally, we consider directions for future research.
    Keywords: Monetary policy
    JEL: E47 E58
    Date: 2023–03
  3. By: Sarah Miller; Patrick Sabourin
    Abstract: Inflation expectations play a vital role in determining inflation. Central bankers need to understand their intricacies and the information they can reveal. We look at the consistency of consumers’ answers to questions on inflation expectations in the Bank of Canada’s Canadian Survey of Consumer Expectations. We analyze factors that may explain consistencies among individuals and overall. We also compare the inflation forecasts of consumers with consistent responses with those of professional forecasters and consumers with varying responses.
    Keywords: Central bank research; Inflation and prices
    JEL: E31 D84
    Date: 2023–03
  4. By: Michl, Thomas R. (Department of Economics, Colgate University)
    Abstract: This paper presents an alternative foundation to the standard quadratic loss function characterizing central bank inflation policy. The alternative treats high employment as a social benefit. In recognition of the inherent asymmetry of the output gap, two self-imposed constraints provide guardrails that rule out excess unemployment and opportunistic reflation. The loss function includes a novel reverse discounting mechanism that penalizes the bank for more sustained inflation gaps that could undermine confidence and reduce inflation expectations anchoring. Anchoring shapes the way the bank manages inflation expectations. In the absence of anchoring the shadow price of expectations is equal to the sacrifice ratio but in the presence of anchoring the shadow price drops to zero reflecting the policy flexibility anchoring affords the central bank. The central bank’s optimal policy differs dramatically from the standard Taylor Rule recommendation in choosing policy plans with higher employment, in its willingness to overshoot inflation targets, and in avoiding excess unemployment, all while observing the discipline needed for successful inflation targeting.
    JEL: E31
    Date: 2023–04–13
  5. By: Sharaf, Mesbah Fathy; Shahen, Abdelhalem Mahmoud
    Abstract: This study aims to examine the symmetric and asymmetric impact of external debt on inflation in Sudan from 1970 to 2020 within a multivariate framework by including money supply and the nominal effective exchange rate as additional inflation determinants. We utilize an Auto Regressive Distributed Lag (ARDL) model to examine the symmetric impact of external debt on inflation, while the asymmetric impact is examined using a nonlinear Auto Regressive Distributed Lag (NARDL) model. The existence of a long-run relationship between inflation and external debt is tested using the bounds-testing approach to cointegration, and a vector error-correction model is estimated to determine the short parameters of equilibrium dynamics. The linear ARDL model results show that external debt has no statistically significant impact on inflation in the long run. On the contrary, the results of the NARDL model show that positive and negative external debt shocks statistically affect inflation in the long run. The estimated long-run elasticity coefficients of both the linear and nonlinear ARDL models reveal that the domestic money supply has a statistically significant positive impact on inflation. In contrast, the nominal effective exchange rate has a statistically significant negative impact on inflation. The reliance on symmetric analysis may not be sufficient to uncover the existence of a linkage between external debt and inflation. Proper external debt management is crucial to control inflation rates in Sudan.
    Keywords: External Debt; Exchange rate; Inflation; Money supply; NARDL; Sudan
    JEL: E31 E52 F34 O24
    Date: 2023–03–01
  6. By: Aydin Yakut, Dilan (Central Bank of Ireland)
    Abstract: Larger and more sustained energy and commodity price shocks as a result of the war in Ukraine are contributing to higher headline inflation in the euro area (EA), when compared with the US. Underneath the headline numbers, trend inflation – something monetary policy-makers pay close attention to in order to get a sense of persistence in inflation dynamics – is still lower in the EA, mainly due to lower services inflation. However, this gap in trend inflation is gradually closing and even slightly reversed recently when owneroccupied housing services costs are excluded from US inflation.
    Date: 2023–02
  7. By: Lukas Hack; Klodiana Istrefi; Matthias Meier
    Abstract: We propose a novel identification design to estimate the causal effects of systematic monetary policy on the propagation of macroeconomic shocks. The design combines (i) a time-varying measure of systematic monetary policy based on the historical composition of hawks and doves in the Federal Open Market Committee (FOMC) with (ii) an instrument that leverages the mechanical FOMC rotation of voting rights. We apply our design to study the effects of government spending shocks. We find fiscal multipliers between two and three when the FOMC is dovish and below zero when it is hawkish. Narrative evidence from historical FOMC records corroborates our findings
    Keywords: Systematic monetary policy, FOMC, rotation, government spending
    JEL: E32 E52 E62 E63 H56
    Date: 2023–03
  8. By: Santiago Camara (Northwestern University/Red-NIE); Sebastian Ramirez Venegas (Comisión para el Mercado Financiero)
    Abstract: This paper studies the transmission of US monetary policy shocks into Emerging Markets emphasizing the role of investment and financial heterogeneity. First, we use a panel SVAR model to show that a US interest tightening leads to a persistent recession in Emerging Markets driven by a sharp reduction in aggregate investment. Second, we study the role of firms’ financial heterogeneity in the transmission of US interest rate shocks by exploiting detailed balance sheet dataset from Chile. We find that more indebted firms experience greater drops in investment in response to a US tightening shock than less indebted firms. This result is at odds with recent evidence from US firms, even when using the same identification strategy and econometric methods. Third, we rationalize this finding using a stylized model of heterogeneous firms subject to a tightening leverage constraint. Finally, we present evidence in support of this hypothesis as well as robustness checks to our main results. Overall, our results suggests that the transmission channel of US monetary policy shocks within and outside the US differ, a result novel to the literature.
    Keywords: Firm dynamics, Firm heterogeneity, Financial frictions, balance sheet effects, US interest rates, Emerging Markets
    JEL: F1 F4 G32
    Date: 2023–04
  9. By: Juraj Falath (National Bank of Slovakia); Alena Kissova (National Bank of Slovakia); Adriana Lojschova (National Bank of Slovakia)
    Abstract: We investigate the impact of the TLTRO III operations introduced by the European Central Bank in 2020 on the bank lending activity of Slovak banks, using unique bank-level data on the program. We deploy a difference-in-difference approach on monthly data covering the time period from January 2012 o December 2021with 34 banks included in the analysis. Our findings suggest that the credit easing measures had a positive effect on bank lending to non- inancial corporations and negative effect on lending rates, even when controlling for possible confounding factors. We also explore other possible uses of TLTRO III liquidity by banks besides increased lending. Although inconclusive, there is some evidence of banks improving their profitability via holding cheap liquidity in their deposit accounts and to a lesser extent via increasing their holdings of debt securities.
    JEL: E43 E44 E51 E52 E58
    Date: 2023–03
  10. By: Karl-Friedrich Israel (UP1 - Université Paris 1 Panthéon-Sorbonne, Saarland University [Saarbrücken], UCO - Université Catholique de l'Ouest); Tim Florian Sepp (Universität Leipzig [Leipzig]); Nils Sonnenberg (Kiel Institute for the World Economy - Kiel Institute for the World Economy)
    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
    Date: 2023–02
  11. By: Maher, Ronan
    Abstract: This essay is a simplistic approach to the stoppage of inflation. This is one take, and many might disagree with the solutions or opinions represented in this essay. This is here to provide another view of this problem and present a few ideas on how to solve this. The essay is about inflation, solutions to inflation, and some examples of inflation.
    Keywords: Inflation; Milton Friedman; Cure to Inflation
    JEL: E31 E4
    Date: 2022–09–08
  12. By: Galindev, Ragchaasuren; Decaluwé, Bernard
    Abstract: This paper develops a CGE model with an explicit monetary policy rule which replaces typical exogenous numeraire so that the model can have endogenous absolute price. A model with exogenous numeraire can be derived as a special case of the current model through a flexible parameterization. It shows that in the presence of nominal rigidities, simulation results for the same shock can be different depending on the choice of exogenous numeraire. Moreover, the current model also gives different results for the same shock by creating inflation. The paper highlights the importance of choosing numeraire or considering the interest rate rule instead of fixed numeraire in the presence of nominal rigidities.
    Keywords: Public Economics
    Date: 2022
  13. By: Breckenfelder, Johannes; Hoerova, Marie
    Abstract: Are central bank tools effective in reaching non-banks with no access to the lender-of-last-resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared to other banks. JEL Classification: E58, G01, G10, G21, G23
    Keywords: asset purchases, COVID-19 liquidity crisis, Investment funds, lender of last resort, market maker of last resort
    Date: 2023–04
  14. By: Oyadeyi, Olajide
    Abstract: As of the last working day of the year 2022 (30th December 2022), the official exchange rate against the US dollar (USD) was 448, while the naira USD exchange rate at the black market traded at 748—a premium of 300. The dollar had already peaked above 800 on the black market during the year 2022, when there were pressures on the foreign exchange (FX) due to elevated demand from individuals, students traveling abroad, and businesses that needed FX to produce their goods and services. Given the continuous depreciation of the naira exchange rate against the USD, caused by a scarcity of foreign exchange, pegging the naira against the USD despite a high rate of inflation may not be the solution to the country’s exchange rate maladjustments. The paper, therefore, offers an alternative policy to help circumvent the problem of exchange rate misalignments and mal-adjustments for Nigeria and proffers ways by which the exchange rate policy becomes transparent and explicit, allowing businesses and individuals to better plan their economic and financial activities.
    Keywords: Exchange Rate, Crawling Peg System
    JEL: E52 E58 F13 F16 F18 F41
    Date: 2023–01–01
  15. By: Oyadeyi, Olajide
    Abstract: The onset of the Covid-19 pandemic, the war on Ukraine, and their effects on global output and supply chain have led to inflationary pressures globally. The Covid-19 pandemic has continued to disrupt the global supply chain, especially in China, while the war between Russia and Ukraine has affected commodity and food prices, leading to inflation rising to levels not seen globally since the global financial crisis in 2008. Inflation has been a pressing issue for policymakers globally. In November 2022, US inflation climbed down to 7.1% from a peak of 9.1% in June, the highest ever in many decades. Even though this figure represents a drop of 8.5% from its October inflation report of 7.7%, we would need to stretch back to 1981 for us to get a period when inflation was that high in the US, averaging 10% that year. As a result of this, how has Nigeria been able to address the issues of global inflation fuelled by the ongoing war in Ukraine? What are some policy considerations that are germane to tackle the current rising prices? These and other questions would be addressed in the article.
    Keywords: Inflation, Interest Rates
    JEL: E30 E31 E42 E43 E52 E58 E62
    Date: 2022–12–31
  16. By: Klaus Adam; Andrey Alexandrov; Henning Weber
    Abstract: Using a novel identification approach derived from sticky price theories with time or state-dependent adjustment frictions, we empirically identify the e¤ect of inflation on relative price distor- tions. Our approach can be directly applied to micro price data, does not rely on estimating the gap between actual and flexible prices, and only assumes stationarity of unobserved shocks. Us- ing U.K. CPI micro price data, we document that suboptimally high (or low) inflation is associated with distortions in relative prices that are highly statistically significant. At the aggregate level, fluctuations in inefficient price dispersion are sizable and covary positively with aggregate inflation. In contrast, overall price dispersion fails to covary with inflation because it is mainly driven by trends in the dispersion of flexible prices.
    JEL: E31 E58
    Date: 2023–03
  17. By: Serdar Kabaca; Kerem Tuzcuoglu
    Abstract: This paper examines the contribution of several supply factors to US headline inflation since the start of the COVID-19 pandemic. We identify six supply shocks using a structural VAR model: labor supply, labor productivity, global supply chain, oil price, price mark-up and wage mark-up shocks. Our shock identification relies mainly on sign restrictions. But for the global supply chain shock, we propose a new identification scheme combining sign, narrative and variance decomposition restrictions. Historical decomposition results suggest that global supply chain and oil price shocks are the biggest supply contributors to the US inflation during the pandemic. In contrast, labor shortages only mildly contribute to inflation, but their impact on output is larger in that period. Additionally, price and wage mark-up shocks start to significantly contribute to inflation only towards the middle of 2022. Finally, our analysis, which also allows the identification of monetary policy and aggregate demand shocks, suggests that demand and supply factors are almost equally responsible for the movements in the inflation rate during the pandemic.
    Keywords: Business fluctuations and cycles; Econometric and statistical methods; Inflation and prices
    JEL: C32 E32
    Date: 2023–03
  18. By: Christian Ghymers (IRELAC (Interdisciplinary Institute for the Relations between the European Union, Latin America and the Caribbean); ICHEC Brussels Management School)
    Abstract: The purpose of this paper is to draw attention to the link (still neglected by economists and policymakers) between the fragility of the liquidity situation and the Triffin Dilemma through the corollary of the “built-in destabiliser†. Indeed, the changes in the financial markets that explain most of the GL expansion have exacerbated the inner pro-cyclical character of financial markets by amplifying the endogenous reversibility of the creation of GL due to the narrowing of the ultimate availability of safe assets in US dollars, on which the inverted pyramid of GL is based, thus creating additional destabilising effects on the financial cycle. A common feature of this recurrent instability of GL and the IMS based on the dollar as the main reserve currency is the absence of a multilateral Lender-of-Last-Resort (LOLR) capable of regulating GL by issuing the optimal quantity of “safe assets†without causing geopolitical policy conflict or asymmetries, because a multilateral safe asset is not, by definition, a debt of any national economy but of the global system.
    Keywords: Liquidity instability, Global liquidity, Financial markets, Triffin dilemma
    JEL: E43 E52 F33 F30 F60 G15
    Date: 2021–11
  19. By: Maximilian Tschuchnig; Petra Tschuchnig; Cornelia Ferner; Michael Gadermayr
    Abstract: Inflation is a major determinant for allocation decisions and its forecast is a fundamental aim of governments and central banks. However, forecasting inflation is not a trivial task, as its prediction relies on low frequency, highly fluctuating data with unclear explanatory variables. While classical models show some possibility of predicting inflation, reliably beating the random walk benchmark remains difficult. Recently, (deep) neural networks have shown impressive results in a multitude of applications, increasingly setting the new state-of-the-art. This paper investigates the potential of the transformer deep neural network architecture to forecast different inflation rates. The results are compared to a study on classical time series and machine learning models. We show that our adapted transformer, on average, outperforms the baseline in 6 out of 16 experiments, showing best scores in two out of four investigated inflation rates. Our results demonstrate that a transformer based neural network can outperform classical regression and machine learning models in certain inflation rates and forecasting horizons.
    Date: 2023–03
  20. By: Joshua Aizenman; Sy-Hoa Ho; Luu Duc Toan Huynh; Jamel Saadaoui; Gazi Salah Uddin
    Abstract: The global financial crisis has brought increased attention to the consequences of international reserves holdings. In an era of high financial integration, we investigate the relationship between the real exchange rate and international reserves using nonlinear regressions and panel threshold regressions over 110 countries from 2001 to 2020. We find the buffer effect of international reserves is more pronounced in Europe and Central Asia above a threshold of 17% of international reserves over GDP. Our study shows the level of financial-institution development plays an essential role in explaining the buffer effect of international reserves. Countries with a low development of their financial institutions may manage the international reserves as a shield to deal with the negative consequences of terms-of-trade shocks on the real exchange rate. We also find the buffer effect is stronger in countries with intermediate levels of financial openness.
    Keywords: Real exchange rate, International reserves, Financial institutions.
    JEL: F15 F21 F32 F36 G20
    Date: 2023
  21. By: Biliana Alexandrova Kabadjova; Anton Badev; Saulo Benchimol Bastos; Evangelos Benos; Freddy Cepeda- Lopéz; James Chapman; Martin Diehl; Ioana Duca-Radu; Rodney Garratt; Ronald Heijmans; Anneke Kosse; Antoine Martin; Thomas Nellen; Thomas Nilsson; Jan Paulick; Andrei Pustelnikov; Antoine Francisco Rivadeneyra; Mario Rubem do Coutto Bastos; Sara Testi
    Abstract: We study intraday liquidity usage and its determinants using a unique cross-country data set on large-value payments. We document that the amount of intraday liquidity that financial institutions around the world use each day equals, on average, 15% of their total daily payment values or 2.8% of their countries' GDP. We then define and calculate system-level measures of liquidity efficiency and inequality in liquidity provision. We show that these measures vary systematically with the degree of payment coordination among payment system participants, the quantity and opportunity cost of central bank reserves and institutional characteristics, such as incentives for early payment submission and liquidity saving mechanism (LSM) design. Our results are consistent with the notion that payment system participants behave strategically and manage intraday liquidity actively. Participants also appear to condition their payment behaviour on specific LSM characteristics, which may weaken some of the LSMs' intended effects.
    Keywords: large-value payment systems, liquidity, LSM, financial markets
    JEL: C5 E42 E58 G21 N2
    Date: 2023–04
  22. By: Daniel Fried
    Abstract: The U.S. dollar plays an important role as the most widely used currency in global goods, services, and financial markets. Strong international demand for U.S. dollars and dollar-denominated assets associated with the dollar’s status as an international currency has increased the value of the dollar in foreign exchange markets and the value of dollar-denominated assets in financial markets. As a result, the dollar’s status has contributed to persistent U.S. trade deficits and, by lowering interest rates, to increased access to credit for U.S. households, businesses, and the
    JEL: E58 F30 F31 F33
    Date: 2023–04–17
  23. By: Andreas Gulyas; Matthias Meier; Mykola Ryzhenkov
    Abstract: This paper uses Austrian social security records to analyze the effects of ECB monetary policy on the labor market. Our focus is on the role of worker and firm wage components, defined by an Abowd et al. (1999) wage regression. Our findings show that monetary tightening causes the largest employment losses for low-paid workers who are employed in high-paying firms before the tightening. Monetary tightening further causes a reallocation of workers to lower-paying firms. In particular low-paid workers who were originally employed by low-paying firms are prone to falling down the firm wage ladder.
    Keywords: Monetary policy, worker reallocation, heterogeneity, AKM
    JEL: E24 E32 E52
    Date: 2023–03
  24. By: Alba Carlos; Cuadra Gabriel; Ibarra Raúl
    Abstract: This paper analyzes the effects of the extraordinary measures implemented by the Bank of Mexico during the COVID-19 pandemic on financial conditions. For this purpose, we estimate a factor-augmented vector autoregressive (FAVAR) model for the period 2001-2021. Based on this model, we construct a financial conditions index, estimate the response of this indicator and its components from a shock to the outstanding amount of these measures, and conduct a counterfactual exercise to further analyze the effect of the aforementioned measures. The results indicate that the extraordinary measures seem to have contributed to improve financial conditions. In particular, we find that if these measures had not been implemented, the sovereign risk premium, the 10-year government bond yield, the slope of the yield curve, the long and short-term yield spreads between Mexico and USA, the exchange rate and its volatility would have been higher. In turn, the Mexican stock market index would have been lower.
    Keywords: Financial Conditions;Central Bank Policies;Factor-Augmented VAR
    JEL: C32 E58 G01 E44
    Date: 2023–03
  25. By: Audrey Allegret Sallenave (LEAD - Laboratoire d'Économie Appliquée au Développement - UTLN - Université de Toulon); Jean-Pierre Allegret (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique); Dalia Ibrahim (Banque de France - Banque de France - Banque de France)
    Abstract: This paper assesses financial asymmetries between the Euro area and the United Stats using a financial accelerator framework. We estimate a GVAR model from 1995Q1 to 2016Q4 and find (i) that American financial shocks have a global influence whereas those of the Euro area are regional and (ii) that American financial shocks have larger effects in size than those of the Euro area. We develop an International Political Economy framework based on the concept of asymmetrical interdependence to point out policy suggestions whose the main objective is to increase the autonomy of the Euro area.
    Keywords: Complex Interdependence, Financial Accelerator, United States, Euro area, GVAR
    Date: 2023
  26. By: Peteris Kloks (University of St. Gallen); Edouard Mattille (University of St. Gallen); Angelo Ranaldo (University of St. Gallen; Swiss Finance Institute)
    Abstract: This paper presents the first comprehensive examination of liquidity in the global foreign exchange (FX) swap market. Our analysis employs effective measures that assess both the tightness and depth of the global market. We identify three main findings: First, FX swap liquidity is fragmented across currencies, tenors, and time. Second, liquidity conditions worsen when dealers’ balance sheet capacity shrinks, especially at quarter-end reporting dates. However, we observe a simultaneous surge in short-term volumes; we rationalize this through a difference-in-differences analysis suggesting a demand channel for FX swaps during reporting windows. Third, we build a measure of pricing efficiency based on the law of one price and show that illiquidity impairs efficiency even during periods when dealers’ regulatory constraints are slack.
    Keywords: exchange swap, Global currency market, Market liquidity, Dealers, Price efficiency.
    JEL: C15 F31 G12 G15
    Date: 2023–03
  27. By: Rasoul Amirzadeh; Asef Nazari; Dhananjay Thiruvady; Mong Shan Ee
    Abstract: The growth of market capitalisation and the number of altcoins (cryptocurrencies other than Bitcoin) provide investment opportunities and complicate the prediction of their price movements. A significant challenge in this volatile and relatively immature market is the problem of predicting cryptocurrency prices which needs to identify the factors influencing these prices. The focus of this study is to investigate the factors influencing altcoin prices, and these factors have been investigated from a causal analysis perspective using Bayesian networks. In particular, studying the nature of interactions between five leading altcoins, traditional financial assets including gold, oil, and S\&P 500, and social media is the research question. To provide an answer to the question, we create causal networks which are built from the historic price data of five traditional financial assets, social media data, and price data of altcoins. The ensuing networks are used for causal reasoning and diagnosis, and the results indicate that social media (in particular Twitter data in this study) is the most significant influencing factor of the prices of altcoins. Furthermore, it is not possible to generalise the coins' reactions against the changes in the factors. Consequently, the coins need to be studied separately for a particular price movement investigation.
    Date: 2023–03

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