nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒05‒08
34 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. How to Limit the Spillover from an Inflation Surge to Inflation Expectations? By Lena Dräger; Michael J. Lamla; Damjan Pfajfar
  2. Money velocity, digital currency, and inflation dynamics By Hermawan, Danny; Lie, Denny; Sasongko, Aryo; Yusan, Richard
  3. Monetary Policy and the Yield Curve By Vladislav Abramov
  4. How Inflation is Threatening Madagascar’s Economic Stability in 2022: An Analysis of Causes and Implications By Andrianady, Josué R.
  5. Mapping inflation dynamics By Catherine Kyrtsou
  6. Revisiting the Monetary Transmission Mechanism through an Industry-Level Differential Approach By Sangyup Choi; Tim Willems; Seung Yong Yoo
  7. Combining monetary, fiscal and structural approaches to model Albanian inflation By Papavangjeli, Meri
  8. Stagflation and Topsy-Turvy Capital Flows By Julien Bengui; Louphou Coulibaly
  9. A Monetary-Fiscal Theory of Sudden Inflations By Marco Bassetto; David S. Miller
  10. A Theory of Fear of Floating By Javier Bianchi; Louphou Coulibaly
  11. Bank accounts, bank concentration and mobile money innovations By Simplice A. Asongu; Nicholas M. Odhiambo
  12. Inflation and Public Debt Reversals in the West African Monetary Zone (WAMZ) Economies By Cham, Yaya
  13. Financial Globalization and Bank Lending: The Limits of Domestic Monetary Policy in The Gambia By Cham, Yaya
  14. Telecommunications regulation, mobile money innovations and financial inclusion By Simplice A. Asongu
  15. Endogenous frequencies and large shocks: price setting in Greece during the crisis By Huw Dixon; Theodora Kosma; Pavlos Petroulas
  16. Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media By Alistair Macaulay; Wenting Song
  17. From Tech Hub to Banking Failure: Exploring the Implications of CBDCs on the Destiny of Silicon Valley Bank By Ali, Hassnian; Aysan, Ahmet Faruk; Yousef, Tariq M
  18. Disinflation and the Stock Market: Third World Lessons for First World Monetary Policy By Anusha Chari; Peter Blair Henry
  19. Capital Controls and Trade Policy By Simon P. Lloyd; Emile A. Marin
  20. The bank lending channel and monetary transmission in Central, Eastern and South-Eastern European countries By Papavangjeli, Meri
  21. Is inflation caused by conflict? By Nicolás Cachanosky; Emilio Ocampo
  22. Renminbi Usage in Cross-Border Payments: Regional Patterns and the Role of Swaps Lines and Offshore Clearing Banks By Ms. Longmei Zhang; Hector Perez-Saiz
  23. Central bank digital currency, poverty reduction and the United Nations sustainable development goals By Ozili, Peterson K
  24. Inflation and Real Activity over the Business Cycle By Francesco Bianchi; Giovanni Nicolò; Dongho Song
  25. Forecasting inflation: the use of dynamic factor analysis and nonlinear combinations By Stephen G. Hall; George S. Tavlas; Yongli Wang
  26. The Transmission Mechanism of Stress in the International Banking System By Alexis Stenfors; Lilian Muchimba
  27. The role of mobile money innovations in transforming unemployed women to self-employed women in sub-Saharan Africa By Simplice A. Asongu; Sara le Roux
  28. The SME-lender relationship network in Ireland By Gaffney, Edward; McGeever, Niall
  29. From LVTS to Lynx: Quantitative Assessment of Payment System Transition By Ajit Desai; Zhentong Lu; Hiru Rodrigo; Jacob Sharples; Phoebe Tian; Nellie Zhang
  30. Fallacy of floating? Reconsidering the ability of flexible exchange rates to offset terms-of-trade volatility in developing countries By Ioana Octavia Popescu
  31. Assessing global and local interest in eNaira CBDC and cryptocurrency information: implications for financial stability By Ozili, Peterson K
  32. Do Professional Forecasters' Phillips Curves Incorporate the Beliefs of Others? By Michael P. Clements; Shixuan Wang
  33. East Asia and the politics of global finance: a developmental challenge to the neoliberal consensus? By Pape, Fabian; Petry, Johannes
  34. Banking in the Shadow of Bitcoin? The Institutional Adoption of Cryptocurrencies By Raphael Auer; Marc Farag; Ulf Lewrick; Lovrenc Orazem; Markus Zoss; Raphael A. Auer

  1. By: Lena Dräger; Michael J. Lamla; Damjan Pfajfar
    Abstract: We study the effects of forward-looking communication in an environment of rising inflation rates on German consumers’ inflation expectations using a randomized control trial. We show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using forward-looking information about inflation. Among these information treatments, professional forecasters’ projections seem to reduce inflation expectations by more than policymaker’s characterization of inflation as a temporary phenomenon.
    Keywords: short-run and long-run inflation expectations, inflation surge, randomized control trial, survey experiment, persistent or transitory inflation shock
    JEL: E31 E52 E58 D84
    Date: 2023
  2. By: Hermawan, Danny; Lie, Denny; Sasongko, Aryo; Yusan, Richard
    Abstract: This paper empirically investigates the impact of transaction cost-induced variations in the velocity of money on inflation dynamics, based on a structural New Keynesian Phillips curve (NKPC) with an explicit money velocity term. The money velocity effect arises from the role of money, both in physical and digital forms, in reducing the aggregate transaction costs and facilitating purchases of goods and services. We find a non-trivial aggregate impact in the context of the Indonesian economy: our benchmark estimates suggest that a 10% decrease in money velocity, which might be facilitated by a new digital currency (e.g. CBDC) issuance, would reduce the inflation rate by 0.6-1.7%, all else equal. Using the estimates and within a small-scale New Keynesian DSGE model, we analyze the potential implications of a CBDC issuance on aggregate fluctuations. A CBDC issuance that conservatively lowers the velocity of money by 5% is predicted to permanently raise the GDP level by 0.8% and lower the inflation rate by 0.8%. Both nominal and real interest rates are also permanently lower. Our findings imply that central banks could potentially use CBDCs as an additional stabilization policy tool by influencing the velocity.
    Keywords: inflation dynamics; transaction cost; velocity of money; digital money; digital currency; central bank digital currency (CBDC); aggregate fluctuations;
    JEL: E31 E32 E41 E42 E50 E51 E58
    Date: 2023–03–29
  3. By: Vladislav Abramov (Bank of Russia, Russian Federation Author-Name: Konstantin Styrin Author-Email: Author-Workplace-Name: Bank of Russia, Russian Federation Author-Name: Alexander Tishin Author-Email: Author-Workplace-Name: Bank of Russia, Russian Federation)
    Abstract: This paper discusses the impact of monetary policy on financial and macroeconomic variables in Russia. We distinguish two types of monetary policy: (1) that causes by changes in the current rates and (2) that causes by any other reason (such as forward guidance, communication, and central bank information). We find that these two types have distinct effects on financial variables. The first type better explains the variation of interest rates for the entire yield curve. In contrast, the second type explains the variation in the exchange rate and market indices. Moreover, we also show that monetary policy transmission from interest rates to inflation takes about one year but this effect is only temporary.
    Keywords: monetary policy surprises, high-frequency identification, principal component analysis
    JEL: E52 E58 E43 E44
    Date: 2022–05
  4. By: Andrianady, Josué R.
    Abstract: This article examines the characteristics of inflation in Madagascar in 2022 and the measures taken to mitigate its impact. The causes of inflation, such as the global geopolitical situation’s impact on energy prices, and the consequences, including the rise in living costs for households, are explored. The government’s efforts to protect consumers from inflation, such as price controls and financial aid for vulnerable house�holds, are also discussed. Additionally, the article analyzes the measures taken by the Banky Foiben’i Madagasikara (BFM) to control inflation, including monetary policy and managing the money supply. The effectiveness of these measures is evaluated. Fi�nally, the article provides a summary of the characteristics of inflation in Madagascar in 2022 and the measures taken to address it, as well as future prospects and potential measures to limit its impact.
    Keywords: Madagascar, inflation, causes, consequences, government measures, Banky Foiben’i Madagasikara (BFM), monetary policy, living costs, price controls, financial aid, 2022.
    JEL: E31 P24 P44
    Date: 2023
  5. By: Catherine Kyrtsou (University of Macedonia)
    Abstract: CPI inflation is subject to structural changes and exogeneous shocks that can have a significant impact to its dynamic evolution. The observed interaction between the intrinsic side of inflation dynamics and the disturbances fuels a rich spectrum of behaviors. To accommodate the complex outcome of interactions, we propose a methodological strategy combining the non-parametric Recurrence Quantification Analysis (RQA), the GPH fractional integration coefficient d and the Phillips-curve based framework. The empirical findings demonstrate the nonlinear contribution of inflation inertia to the headline inflation dynamics, mainly over the last eight quarters of the sample alongside the occurrence of price shocks.
    Keywords: Inflation dynamics; Inertia; RQA; GPH coefficient d; Entropy; Complexity; Phillips curve
    JEL: C40 C50 E31 E52
    Date: 2023–01
  6. By: Sangyup Choi (Yonsei University); Tim Willems (Bank of England); Seung Yong Yoo (Yale University)
    Abstract: We combine industry-level data on output and prices with monetary policy shock estimates for 105 countries to analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralize, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, nor for a channel running via exports. Our database (containing estimated monetary policy shocks for 177 countries) may be of independent interest to researchers.
    Keywords: Monetary policy transmission; Industry growth; Financial frictions; Heterogeneity in transmission; Monetary policy shocks.
    JEL: E32 E52 F43 G20
    Date: 2023–04
  7. By: Papavangjeli, Meri
    Abstract: Amidst the prevailing global economic uncertainty and rising commodity prices, this article investigates empirically the driving forces of inflation in Albania through combining several approaches, focusing especially on the developments in the food sector in general and cereals in particular, during the period from 2000 to 2022. Considering four measures of inflation such as: cereals, food, non-food, and headline inflation, it analysis the effects of domestic and foreign factors on inflation, using a vector error correction model (VECM), which allows to capture both the short-term and long-term effects. The study also considers the fiscal sector in examining inflation dynamics, which has been neglected so far in the current studies on this topic. The empirical analysis finds that domestic inflation is underpinned by disequilibria in the monetary, cereals and non-food sectors; in the short-run, inflation is driven by structural factors (particularly agricultural output gap and imported inflation), as well as demand-side factors (especially money growth and public sector borrowing).
    Keywords: inflation; monetary, fiscal, structural factors
    JEL: E30 E50 E62 Q11
    Date: 2022–07–10
  8. By: Julien Bengui; Louphou Coulibaly
    Abstract: Are unregulated capital flows excessive during a stagflation episode? We argue that they likely are, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages through a wealth effect on labor supply and cause unwelcome upward pressure on marginal costs in countries where monetary policy is trying to drive down costs to stabilize inflation. Yet, market forces are likely to generate such inflows. Optimal capital flow management instead requires net outflows, suggesting topsy-turvy capital flows following markup shocks.
    Keywords: Stabilization policy; Capital flow management; Macroeconomic externalities; Stagflation; Current account adjustment
    JEL: E32 E44 E52 F32 F41 F42
    Date: 2023–01–26
  9. By: Marco Bassetto; David S. Miller
    Abstract: This paper posits an information channel as the explanation for sudden inflations. Consumers saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back bond repayment against the benefit of a more informed saving decision. Through the information channel, small changes in the economic environment can trigger large responses in consumers' behavior and prices. This setting explains why there can be long stretches of time during which government surpluses have large movements with little inflation response; yet, at some point, something snaps, and a sudden inflation takes off that is strongly responsive to incoming fiscal news.
    Keywords: Fiscal theory of the price level; Sudden inflation; Monetary fiscal interaction; Price level determination
    JEL: E51 E31 E63 E52
    Date: 2022–12–16
  10. By: Javier Bianchi; Louphou Coulibaly
    Abstract: Many central banks whose exchange rate regimes are classified as flexible are reluctant to let the exchange rate fluctuate. This phenomenon is known as “fear of floating”. We present a simple theory in which fear of floating emerges as an optimal policy outcome. The key feature of the model is an occasionally binding borrowing constraint linked to the exchange rate that introduces a feedback loop between aggregate demand and credit conditions. Contrary to the Mundellian paradigm, we show that a depreciation can be contractionary, and letting the exchange rate float can expose the economy to self-fulfilling crises.
    Keywords: Self-fulfilling financial crises; Exchange rates
    JEL: E52 F45 F41 G01 F36 F33 E44 F34
    Date: 2023–02–03
  11. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The present study investigates how increasing bank accounts and bank concentration affect mobile money innovations in 148 countries. It builds on scholarly and policy concerns in the literature that increasing bank accounts may not be having the desired effects on financial inclusion on the one hand and on the other, that bank concentration which is a proxy for market power is a relevant mobile money innovation demand factor. The empirical evidence is based on Tobit regressions. From the findings, it is apparent that boosting bank accounts is positively related to the three mobile money innovations (i.e. mobile bank accounts and the mobile phone used to send money). Moreover, some critical levels of bank account penetration require complementary policies in order to maintain the positive relationship between boosting bank accountsand positive outcomes in terms of money mobile innovations.Conversely, financial inclusion in terms of the three mobile money innovations is not significantly apparent upon enhancing bank concentration. Policy implications are discussed in the light of the provided thresholds for complementary policies.
    Keywords: Mobile money; technology; diffusion; financial inclusion; inclusive innovation, information asymmetry
    JEL: D10 D14 D31 D60 O30
    Date: 2023–01
  12. By: Cham, Yaya
    Abstract: The research focused on the causes of inflation and public debt reversal in the West African Monetary Zone (WAMZ) economies. Several factors influencing public debt reversal and inflation, including weak institutions, high government spending, influence from external shock and lack of proper revenue mobilization, were discussed. The impact of these factors on the WAMZ economies has also been examined. These countries suffer from high inflationary pressures, increasing borrowing costs and slow economic growth. Policies and other methods implemented by the WAMZ economies to address these challenges have also been evaluated. The last section of the research looks at the challenges these economies face in implementing the policy responses stipulated to address public debt reversals and inflation.
    Keywords: Inflation, Public Debt Reversals, West African Monetary Zone and Economies
    JEL: E5 E52 E58 E6 E62 E63 H2 H3 H30 H5 O5 O55 O57
    Date: 2023–04–11
  13. By: Cham, Yaya
    Abstract: Limitations of domestic Monetary Policies in The Gambia highlight the challenges faced by developing countries in managing their domestic economies in the context of bank lending as well as financial globalisation. The high level of financial integration with global markets, brought about by globalisation and advancements in science and technology, means that domestic monetary policies in developing countries have a limited impact on managing the domestic economies, as interest rates and exchange rates are increasingly influenced by global factors beyond the control of domestic monetary and fiscal policies . As such, these countries experience challenges in managing inflation and promoting economic growth. At the same time, scientific advancements and technology have facilitated financial globalisation and made it easier for banks to lend to customers in different countries, but these developments have also raised concerns about the regulation of cross-border lending and the potential for financial instability in the global financial system. It has become increasingly important for affected countries to put in place policies and strategies that shield their economies from these external shocks and influences to allow them to control inflation and promote economic growth.
    Keywords: Financial Globalization, Bank Lending, Domestic Monetary Policy and The Gambia
    JEL: F6 G2 N1
    Date: 2023–04–11
  14. By: Simplice A. Asongu (Yaounde, Cameroon)
    Abstract: This study assesses how corporate telecommunication (telecom) policies follow telecom sector regulation in mobile money innovation for financial inclusion in developing countries. Telecom policies are understood in terms of mobile subscriptions, mobile connectivity coverage and mobile connectivity performance while mobile money innovations represent mobile money accounts, the mobile used to send money and the mobile used to receive money. The empirical evidence is based on Tobit regressions. Telecom sector regulation positively influences mobile money innovations. From net influences, mobile subscriptions and connectivity policies moderate telecom sector regulation to positively influence mobile money innovations; exclusively within the remit of mobile money accounts because the corresponding net influences on the mobile used to send money and the mobile used to receive money are negative. The interactive influences are consistently negative and hence, thresholds for complementary policies are provided in order to maintain the positive influence of telecom sector regulation on mobile money innovations. This study has complemented the extant literature by assessing how corporate telecommunication policies follow telecommunication sector regulation in mobile money innovations for financial inclusion.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D10 D14 D31 D60 O30
    Date: 2023–01
  15. By: Huw Dixon (Cardiff Business School); Theodora Kosma (Bank of Greece); Pavlos Petroulas (Bank of Greece)
    Abstract: We utilize a unique micro price data set for Greece that underpins the Greek CPI. It spans almost two decades, during which Greece suffered a large economic shock. We find that during this time there were significant changes in the pricing behavior of Greek firms. We also find macro-economic developments such as annual inflation and output growth are important factors in determining the frequency and size of price changes. This leads to an intertemporal inflation dynamic linking current inflation to future price behavior and inflation. Utilizing the empirical estimates from the data, we combine a Taylor rule and Euler equation with the inflation dynamic resulting from the asymmetric impact of inflation on the frequency of price increases and the frequency of price decreases. The results of the simulations capture the Greek inflation developments well. Moreover, they also capture developments in the frequency of price increases and decreases seen in other economies and over different time-periods.
    Keywords: inflation dynamics; frequencies; prices; microdata
    JEL: E31 E37 C26 C41
    Date: 2023–02
  16. By: Alistair Macaulay; Wenting Song
    Abstract: This paper studies the role of narratives for macroeconomic fluctuations. We micro-found narratives as directed acyclic graphs and show how exposure to different narratives can affect expectations in an otherwise standard macroeconomic model. We capture such competing narratives in news media’s reports on a US yield curve inversion by using techniques in natural language processing. Linking these media narratives to social media data, we show that exposure to a recessionary narrative is associated with a more pessimistic sentiment, while exposure to a nonrecessionary narrative implies no such change in sentiment. In a model with financial frictions, narrative-driven beliefs create a trade-off for quantitative easing: extended periods of quantitative easing make narrative-driven waves of pessimism more frequent, but smaller in magnitude.
    Keywords: Financial markets; Inflation and prices; Monetary policy
    JEL: D84 E32 E43 E44 E5 G1
    Date: 2023–04
  17. By: Ali, Hassnian; Aysan, Ahmet Faruk; Yousef, Tariq M
    Abstract: The potential implications of central bank digital currencies (CBDCs) on Silicon Valley Bank (SVB) are vast, particularly when it comes to oversight of the bank. This paper aims to explore how the introduction of CBDCs could have impacted SVB and its eventual collapse. The introduction of CBDCs has the potential to disrupt traditional banking systems, which could impact the stability of the financial industry. However, CBDCs can also provide real-time monitoring and oversight, which could help to prevent bank failures. This paper examines the potential impact of CBDCs on SVB and how it could have been impacted by the real-time monitoring provided by the Federal Reserve. The findings suggest that the introduction of CBDCs could have helped to prevent the collapse of SVB by allowing for real-time monitoring and oversight. The implications of this research are significant, as it highlights the potential benefits of CBDCs in preventing future banking failures and strengthening financial stability.
    Keywords: SVB, CBDCs, Federal Reserve, Digital Bank Run
    JEL: G28 H12 O32
    Date: 2023–04–06
  18. By: Anusha Chari; Peter Blair Henry
    Abstract: When policymakers implement a disinflation program directed at high inflation, the real dollar value of their country’s stock market index experiences a cumulative abnormal 12-month return of 48 percent in anticipation of the event. In contrast, the average cumulative abnormal 12-month return associated with disinflations directed at moderate inflation is negative 18 percent. The 66-percentage point difference between cumulative abnormal returns, along with descriptive evidence and case studies, suggests that unlike the swift eradication of past high inflations documented by Sargent (1982), the US will not experience a quick, low-cost transition from moderate inflation to the Fed’s two-percent target.
    JEL: E44 E52 E65
    Date: 2023–04
  19. By: Simon P. Lloyd; Emile A. Marin
    Abstract: How does the conduct of optimal cross-border financial policy change with prevailing trade agreements? We study the joint optimal determination of trade policy and capital- flow management in a two-country, two-good model with trade in goods and assets. While the cooperative optimal allocation is efficient, a country-planner can achieve higher domestic welfare by departing from free trade in addition to levying capital controls, absent retaliation from abroad. However, time variation in the optimal tariff induces households to over- or under-borrow through its effects on the path of the real exchange rate. As a result, optimal capital controls can be larger when used in conjunction with optimal tariffs in specific cases; and in others, the optimal trade tariff partly substitutes for the use of capital controls. Accounting for strategic retaliation, we show that committing to a free-trade agreement can reduce incentives to engage in costly capital-control wars for both countries.
    JEL: F13 F32 F33 F38
    Date: 2023–03
  20. By: Papavangjeli, Meri
    Abstract: Using disaggregated data for 266 individual banks from Bankscope database and other supplementary sources, this article investigates the functioning of the bank lending channel and monetary transmission in 10 Central, Eastern and South-Eastern European (CESEE) countries over the period 2010-2018. It also takes into account the banks’ characteristics such as: size and capitalisation, classifying the countries in three groups according to the development level of their banking sector, captured by the EBRD banking reform criteria. Results confirm the theory of bank lending channel, with smaller banks being more sensitive to monetary contractions in less developed financial systems. Capitalisation has a positive effect on loan growth, and changes in funding costs have the most significant impact on small and less capitalised banks. GDP growth and inflation have a positive impact on loan growth in all country groups.
    Keywords: bank lending channel; size and capitalisation; monetary transmission
    JEL: C51 E51 G21 P34
    Date: 2021–07–10
  21. By: Nicolás Cachanosky; Emilio Ocampo
    Abstract: We offer a critique of a paper recently published Lorenzoni and Werning (2023) that seeks to make an original contribution to the hypothesis that inflation is primarily caused by conflict and reconcile the Post-Keynesian and New-Keynesian traditions. L&W’s paper has two sections. In the first they develop a barter model that allows them to prove that inflation can occur with conflict and without money. In the second they incorporate the conflict hypothesis into a broader framework compatible with New Keynesian models. We question the logical consistency and empirical validity of the barter model and the testability of the model with staggered pricing assumptions. We also trace the ideological roots of inflation as conflict hypothesis and highlight the policy implications that must be logically derived from it.
    Keywords: conflict, inflation
    JEL: E31
    Date: 2023–04
  22. By: Ms. Longmei Zhang; Hector Perez-Saiz
    Abstract: The paper examines the usage of the Renminbi (RMB) as an international payment currency. Globally, the use of RMB remains small, accounting for 2 percent of total cross-border transactions. Using country-level transaction data from Swift** for 2010–21, we find significant regional variations in the use of RMB for cross-border payments. While RMB is little used in some regions, it has gained traction in others, and these cross-country differences have widened over the years. Such differences can be partly explained by an economy’s geographic distance, political distance, and trade linkages with China. However, it also reflects the impact of policy measures by the People’s Bank of China, including establishing bilateral swap lines and offshore clearing banks. Both policy measures helped to address offshore RMB liquidity shortages given China’s overall capital account restrictions, with the offshore clearing banks having a quantitatively larger impact. Our analysis contributes to a better understanding of the growing importance of RMB within the international monetary system.
    Keywords: RMB internationalization; Swift; Swap lines; Offshore Clearing Banks
    Date: 2023–03–31
  23. By: Ozili, Peterson K
    Abstract: This paper examines the role of central bank digital currency (CBDC) for poverty reduction and sustainable development. In the paper, I argue that a CBDC can eliminate poverty by increasing financial inclusion which gives poor people access to affordable credit and other basic financial services which they can use to improve their welfare, thereby enabling them to rise above poverty, and achieve the United Nations sustainable development goal of eradicating poverty. This argument is valid only if a central bank digital currency is designed to incorporate features that increase financial inclusion. The argument may not be valid in cases where a CBDC is not designed to increase financial inclusion as is the case in some developed countries. The implication is that a CBDC can lead to poverty reduction only when the CBDC design incorporate features that increase financial inclusion. Policy makers can ensure that the CBDC used in their countries is designed to incorporate features that increase financial inclusion which is vital for poverty reduction and for achieving the United Nations sustainable development goal of eradicating poverty in all its forms.
    Keywords: CBDC, central bank digital currency, financial inclusion, poverty reduction, sustainable development goals, United Nations.
    JEL: E40 E42 Q01 Q50 Q56
    Date: 2023
  24. By: Francesco Bianchi; Giovanni Nicolò; Dongho Song
    Abstract: We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show that cyclical fluctuations of inflation are related to cyclical movements in real activity and unemployment, in line with what is implied by the New Keynesian framework. We then discuss the reasons for which our results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. We explain empirically and theoretically how to reconcile these differences.
    JEL: C32 E31 E32
    Date: 2023–03
  25. By: Stephen G. Hall (Leicester University, Bank of Greece, and Pretoria University); George S. Tavlas (Bank of Greece and the Hoover Institution, Stanford University); Yongli Wang (Birmingham University)
    Abstract: This paper considers the problem of forecasting inflation in the United States, the euro area and the United Kingdom in the presence of possible structural breaks and changing parameters. We examine a range of moving window techniques that have been proposed in the literature. We extend previous work by considering factor models using principal components and dynamic factors. We then consider the use of forecast combinations with time-varying weights. Our basic finding is that moving windows do not produce a clear benefit to forecasting. Time-varying combination of forecasts does produce a substantial improvement in forecasting accuracy.
    Keywords: forecast combinations; structural breaks; rolling windows; dynamic factor models; Kalman filter
    JEL: C52 C53
    Date: 2023–02
  26. By: Alexis Stenfors (University of Portsmouth); Lilian Muchimba (University of Portsmouth)
    Abstract: Significant and volatile deviations from the covered interest parity (CIP) are indicators of stress in the international banking system. This paper uses a TVP-VAR model to investigate the dynamic connectedness and spillovers of such stress between the US, the UK, Japan and the Eurozone from 4 July 2006 to 9 June 2022. To do so, we use daily price data on cross-currency basis swaps (CRSs), typically used to trade and express CIP deviations for maturities of 1 year and beyond. We also incorporate a yield curve dimension by including prices representative of the short-term (1Y), medium-term (5Y) and long-term (10Y) to obtain a more nuanced picture of the role of market expectations. Our findings suggest that overall connectedness is highly event-dependent and peaks during periods of high volatility and market stress. However, the transmission mechanism across banking systems and yield curve maturities has evolved considerably over time, which has significant implications for policies attempting to mitigate future crises.
    Keywords: Banks, CIP deviations, Cross-currency basis swaps, Dynamic connectedness, TVP-VAR, Yield curves
    JEL: C32 C5 F3 G15
    Date: 2023–04–24
  27. By: Simplice A. Asongu (Yaounde, Cameroon); Sara le Roux (Oxford Brookes University, Oxford, UK)
    Abstract: The study examines how mobile money innovations transform unemployed women to self-employed women. The empirical evidence is based on interactive quantile regressions focusing on data in 44 countries from sub-Saharan Africa for the period 2004 to 2018. The hypothesis that mobile money innovations transform female unemployment to female self-employment is tested. Eight mobile money innovation dynamics presented in four categories are employed. Three main common findings are apparent from interactions between female unemployment, eight mobile money innovation dynamics and female self-employment: (i) the investigated hypothesis is valid exclusively at the top quantiles of female self-employment; (ii) the net effects are consistently negative and (iii) the corresponding conditional or interactive effects upon which the net effects are based are consistently positive. This is an indication that critical masses at which money innovation innovations have an overall positive net effect on female self-employment are apparent. The corresponding mobile money innovation policy thresholds at which the net effects on female self-employment change from negative to positive are provided. Policy implications are discussed.
    Keywords: Mobile phones; financial inclusion; women; inequality; sub-Saharan Africa
    JEL: G20 O40 I10 I20 I32
    Date: 2023–01
  28. By: Gaffney, Edward (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland)
    Abstract: In this Note, we examine the relationship between non-bank lenders and Irish small and medium enterprises (SMEs). We review the relevance of non-bank lending to financial stability. We then describe the SME-lender relationship network in Ireland. We find that 36 per cent of SME company borrowers owe money to a non-bank lender, with 15 per cent borrowing exclusively from nonbanks and 21 per cent borrowing from both banks and non-banks. We also show that 71 per cent of borrowers have only one lender. Finally, we characterise the firms that rely on non-bank lenders for credit. We find that SMEs that borrow from non-banks are younger, less liquid, and have higher leverage than SMEs that borrow from banks.
    Date: 2022–11
  29. By: Ajit Desai; Zhentong Lu; Hiru Rodrigo; Jacob Sharples; Phoebe Tian; Nellie Zhang
    Abstract: Modernizing Canada’s wholesale payments system to Lynx from the Large Value Transfer System (LVTS) brings two key changes: (1) the settlement model shifts from a hybrid system that combined components of both real-time gross settlement (RTGS) and deferred net settlement (DNS) to an RTGS system; (2) the policy regarding queue usage changes from discouraging it to encouraging the adoption of the new liquidity-saving mechanism. We utilize this unique opportunity to quantitatively assess the effects of those changes on the behaviour of participants in the high-value payments system. Our analysis reveals the following: (1) At the system level, most payments are settled in a single stream with the liquidity-savings mechanism in Lynx—facilitating liquidity pooling and leading to higher efficiency than LVTS where payments were distributed in two streams. Moreover, due to Lynx’s liquidity-saving mechanism, many payments arrive earlier than those in LVTS, providing more opportunities for liquidity saving at the cost of slightly increased payment delay. (2) At the participant level, the responses are rather heterogeneous; however, our analysis suggests that liquidity efficiency is improved for several participants, and most experience slightly longer payment delays in Lynx than in LVTS.
    Keywords: Financial institutions; Financial services; Financial system regulation and policies; Payment clearing and settlement systems
    JEL: E42 G28 C10
    Date: 2023–04
  30. By: Ioana Octavia Popescu
    Abstract: This paper questions the traditionally accepted superiority of flexible exchange rate regimes in o↵setting commodity price fluctuations. Employing an updated measure of the commodity terms-of-trade, a comparison of exchange rate regime classifications and more recent data than much of literature supporting this assertion, I find little evidence that flexible regimes deliver better outcomes in this regard. Although previous results are reproducible with the use of a certain terms-of-trade measure, their significance dissipates when employing an arguably more comprehensive measure. The results are similarly sensitive to the use of an alternative exchange rate regime classification. Notably, any significance found with either measure vanishes in the period after 2004, potentially indicative of a structural break in the transmission of terms-of-trade improvements to economic growth. In light of these findings, I suggest that, with updated measures and awareness of a potential structural break in hand, it may be time to re-evaluate the way in which terms-of-trade shocks have been understood to transmit in developing economies and what kind of exchange rate regime is best suited to this transmission mechanism.
    Date: 2023
  31. By: Ozili, Peterson K
    Abstract: Abstract This paper investigates the global and local interest in internet information about cryptocurrency and the Nigeria central bank digital currency which is also known as eNaira. Granger causality test and GMM coefficient matrix methodologies were used. The findings reveal that there is sustained increase in global and local interest in internet information about eNaira in the first six weeks after eNaira adoption. Local interest in internet information about cryptocurrency in Nigeria exceeded global interest in internet information about cryptocurrency. The South-East region had the highest interest in cryptocurrency information followed by the South-South, the North-Central, the North-East, the North-West and the South-West regions. In contrast, the North-East region had the highest interest in internet information about eNaira followed by the North-West, the North-Central, the South-West, the South-South and the South-East regions. Nigeria recorded the highest global interest in internet information about cryptocurrency and eNaira while Japan and Brazil recorded the lowest interest during the period. The correlation results show a significant and positive correlation between interest in cryptocurrency information and interest in eNaira information. The granger causality results show that global interest in cryptocurrency information causes both global and local interest in eNaira information. Also, local interest in cryptocurrency information causes global interest in eNaira information. The GMM regression coefficient matrix shows a significant positive relationship between interest in cryptocurrency information and eNaira information.
    Keywords: internet, information, trends, eNaira, cryptocurrency, central bank digital currency, CBDC, bitcoin
    JEL: G02 G23 G29 O31
    Date: 2023
  32. By: Michael P. Clements (ICMA Centre, Henley Business School, University of Reading); Shixuan Wang (Department of Economics, University of Reading)
    Abstract: We apply functional data analysis to survey expectations data, and show that functional principal component analysis combined with functional regression analysis is a fruitful way of capturing the effects of others' forecasts on a respondent's inflation forecasts. We estimate forward-looking Phillips curves on each respondent's inflation and unemployment rate forecasts, and show that for nearly a half of the respondents the forecasts of others are important. The functional principal components of the cross-sectional distributions of forecasts are shown to capture characteristics other than the mean or consensus forecast, and include forecaster disagreement.
    Keywords: inflation forecasting, functional data analysis, Survey of Professional Forecasters, forecast disagreement
    JEL: C53 E37
    Date: 2023–02–17
  33. By: Pape, Fabian; Petry, Johannes
    Abstract: Recent IPE scholarship locates the key dynamics of financial globalization in two areas: public money flows between the US and Asia, or private banking flows between the US and Europe. This dichotomy presents the globalization of private finance as firmly anchored within transatlantic, neoliberal financial norms. We argue that this creates a blind spot regarding the growing role of East Asian finance within the global financial system. Combining CPE insights on institutional characteristics of Asian financial systems with a macro-financial analysis of the global financial system, this paper analyzes the global implications of the geographic shift towards East Asia. First, we demonstrate the growing importance of East Asia for global macro-financial flows, actors and markets that goes beyond the rise of China. Second, we explore how the institutional arrangements that underpin Asian financial systems differ significantly from transatlantic finance. By investigating the growing importance of global investors in Asian markets and Asian investors in global markets, we explore how the shift towards East Asia introduces a growing role of developmental characteristics within global finance. This calls for a reconsideration of conventional analyses of the global financial system which often assume its role as a force of neoliberal globalization.
    Keywords: comparative political economy; East Asia; global financial system; international political economy; comparative capitalism; developmentalism; global finance; macro-finance; neoliberalism; post-crisis; Warwick T&F agreement
    JEL: F3 G3 J1
    Date: 2023–03–15
  34. By: Raphael Auer; Marc Farag; Ulf Lewrick; Lovrenc Orazem; Markus Zoss; Raphael A. Auer
    Abstract: The phenomenal growth of cryptocurrencies raises important questions about their footprint on the financial system. What role are traditional financial intermediaries playing in cryptocurrency markets and what drives their engagement? Are new nodes emerging? We help answer these questions by leveraging a novel global supervisory database of banks’ cryptocurrency exposures and by synthesising a range of complementary data sources for other types of institutions. We find that major banks’ exposures currently remain at very modest levels. Across countries, higher innovation capacity, more advanced economic development, and greater financial inclusion are associated with a higher likelihood of banks taking on cryptocurrency exposures. We show that substantial activity is concentrated in lightly regulated crypto exchanges. This “shadow crypto financial system” serves both retail and institutional clients, such as dedicated investment funds. An uneven regulatory treatment across banks and crypto exchanges and significant data gaps suggest that a proactive, holistic and forward-looking approach to regulating and overseeing cryptocurrency markets is needed. It should focus on ensuring a more level playing field with regard to financial services provided by established financial institutions and intermediaries in the emerging crypto shadow financial system by introducing more stringent regulatory and supervisory oversight for the latter.
    Keywords: cryptocurrencies, decentralised finance, digital currencies, financial regulation, financial supervision, exchange stablecoin, Bitcoin, Ethereum
    JEL: E42 G12 G21 G23 G28 O33
    Date: 2023

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