nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒07‒10
thirty-two papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Monetary policy transmission in Georgia: empirical evidence By Sergo Gadelia; Tamar Mdivnishvili; Shalva Mkhatrishvili
  2. Inflation of objectives instead of focus on inflation? Evidence on the ECB objective function from a textual analysis By Heinemann, Friedrich; Kemper, Jan
  3. Monetary Policy Transmission, Bank Market Power, and Wholesale Funding Reliance By Amina Enkhbold
  4. Monetary policy and financial markets: evidence from Twitter traffic By Donato Masciandaro; Davide Romelli; Gaia Rubera
  5. Women and Governance: Monetary policy decisions taken by central banks affect the economy, society and politics worldwide. Does the presence of women matter in these decisions? We construct a new and unique dataset on the presence of women on central bank monetary policy committees for a large sample of countries, over the period 2001-2017 and document an increasing share of women on central bank boards. We investigate how the presence of women correlates with the conduct of monetary policy by estimating Taylor rules augmented to include the share of women on monetary policy committees. We show that central bank boards with a higher proportion of women are more responsive to inflation. This suggests that central banks whose boards are characterised by a higher presence of women are associated with a more conservative approach to monetary policy when inflation is higher. We confirm this result by analysing the voting behaviour of members of the executive board of the Swedish Central Bank during the period 2000-2017. By Donato Masciandaro; Paola Profeta; Davide Romelli
  6. What we know on Central Bank Digital Currencies (so far) By Shalva Mkhatrishvili; Wim Boonstra
  7. Inequality and the Zero Lower Bound By Jesús Fernández-Villaverde; Joël Marbet; Galo Nuño; Omar Rachedi
  8. Where do they care? The ECB in the media and inflation expectations By Vegard Høghaug Larsen; Nicolò Maffei-Faccioli; Laura Pagenhardt
  9. A Monetary Equilibrium with the Lender of Last Resort By Makoto WATANABE; Tarishi Matsuoka
  10. The Macroeconomic Consequences of Exchange Rate Depreciations By Masao Fukui; Emi Nakamura; Jón Steinsson
  11. Monetary Policy & Stock Market By Kian Tehranian
  13. The Phillips curve in the euro area: New evidence using country-level data By Wellmann, Susanne
  14. International Spillovers of ECB Interest Rates Monetary Policy & Information Effects By Santiago Camara
  15. Racial Unemployment Gaps and the Disparate Impact of the Inflation Tax By Mohammed Ait Lahcen; Garth Baughman; Hugo van Buggenum
  16. Gambling to Preserve Price (and Fiscal) Stability By Giancarlo Corsetti; Bartosz Maćkowiak
  17. Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach By Hassan Afrouzi; Saroj Bhattarai
  18. MPC heterogeneity and the dynamic response of consumption to monetary policy By Miguel Ampudia; Russell Cooper; Julia Le Blanc; Guozhong Zhu
  19. Volatility jumps and the classification of monetary policy announcements By Giampiero M. Gallo; Demetrio Lacava; Edoardo Otranto
  20. Differential Effects of Unconventional Monetary Policy By Eiblmeier, Sebastian
  21. Understanding Inflation Dynamics: The Role of Government Expenditures By Chang Liu; Yinxi Xie
  22. Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature By Goran Petrevski
  23. The Crypto Multiplier By Rodney Garratt; Maarten van Oordt
  24. Interactions of fiscal and monetary policies under waves of optimism and pessimism By De Grauwe, Paul; Foresti, Pasquale
  25. What People Believe About Monetary Finance and What We Can(’t) Do About It: Evidence from a Large-Scale, Multi-Country Survey Experiment By Cars Hommes; Julien Pinter; Isabelle Salle
  26. A Systematic Review of the Association between Fiscal Policy and Monetary Policy: Interactions, Challenges, and Implications By Yeboah, Samuel
  27. Magnitudes and capital key divergence of the Eurosystem's PSPP/PEPP purchase - Update June 2022 By Birkholz, Carlo; Heinemann, Friedrich
  28. Taxing Mobile Money in Kenya: Impact on Financial Inclusion By Diouf, Awa; Carreras, Marco; Santoro, Fabrizio
  29. Structural Analysis and Forecast of Nigerian Monthly Inflation Movement between 1996 and 2022 By Job Nmadu; Ezekiel Yisa; Usman Mohammed; Halima Sallawu; Yebosoko Nmadu; Sokoyami Nmadu
  30. Theoretical Inflation for Unavailable Products By Rachel Soloveichik
  31. Quantitative Easing, Bank Lending, and Aggregate Fluctuations By Matthew Schaffer; Nimrod Segev
  32. Markups and inflation during the COVID-19 pandemic By Olga Bilyk; Timothy Grieder; Mikael Khan

  1. By: Sergo Gadelia (Junior Researcher, Private Sector Development Research Center (PCDRC), ISET Policy Institute (ISET PI)); Tamar Mdivnishvili (Macroeconomic Research Division, National Bank of Georgia); Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department, National Bank of Georgia)
    Abstract: The strength of monetary policy transmission mechanism is what defines central banks’ ability to influence a real economy and overall prices. This is what we analyse empirically within this paper. Namely, using structural vector autoregressions and based on data since 2009 when the NBG switched to an inflation targeting regime, we estimate the strength of interest rate and exchange rate channels in Georgia. The results suggest that both are relatively strong. Namely, an increase in interest rates seems to generate all three: smaller output gap, exchange rate appreciation and, consequently, lower inflation, underlining the improved transmission mechanism since the estimates from a decade ago. The reaction of inflation to an interest rate change peaks after 4 quarters, in line with other studies as well as the NBG’s communication. Moreover, a variance decomposition analysis shows that inflation is mostly driven by supply shocks with demand shocks having only a negligible effect. In principle, this may be in line with the presumption that it is the central bank’s systematic reaction function that neutralizes the effects of demand shocks on inflation, leaving the supply side as the major driver of inflation data.
    Keywords: Monetary policy; Transmission mechanism; Structural vector autoregressions; Inflation targeting.
    JEL: C13 E43 E52 F31
    Date: 2021–11
  2. By: Heinemann, Friedrich; Kemper, Jan
    Abstract: In this analysis, we investigate ECB communication by analyzing more than 3, 800 speeches from 1999 until 2022. The study measures the attention which ECB Council members pay to various implicit and explicit monetary policy objectives. While price stability, according to the Maastricht Treaty, is the primary objective, other societal objectives can play a role for monetary policy reflections and decisions as well. A changing emphasis on alternative objectives over time but also cross-sectional differences between ECB Council members are an insightful source for current monetary policy debates. In these debates it is discussed to which extent central bank decisions may increasingly be constrained by objectives other than price stability. In addition to price stability, our analysis considers the following dimensions of a possible central bank objective function: financial stability, sovereign bond market stability, public debt, climate protection, and distribution.
    Date: 2022
  3. By: Amina Enkhbold
    Abstract: I study the impact of banking market concentration and wholesale funding reliance on the transmission of monetary policy shocks to mortgage rates. I empirically demonstrate that in the United States, banks with higher reliance on wholesale funding in concentrated (competitive) deposit markets transmit monetary policy shocks less (more) to mortgage rates. I study this imperfect transmission through the lens of a New Keynesian model with monopolistically competitive banks and costly access to wholesale funding. I find that high market power banks with greater wholesale funding transmit monetary policy less to deposit rates, generating lower liability. This leads to lower mortgage lending, house prices, and borrower consumption. If monetary policy shocks become persistent, this negative effect is amplified with banks shifting away from deposits more towards wholesale funding.
    Keywords: Financial institutions; Inflation targets; Monetary policy transmission; Wholesale funding
    JEL: E44 E52 G21
    Date: 2023–06
  4. By: Donato Masciandaro (Department of Economics, Bocconi University); Davide Romelli (Department of Economics, Trinity College Dublin); Gaia Rubera (Department of Marketing, Bocconi University)
    Abstract: Monetary policy announcements of major central banks trigger substantial discussions about the policy on social media. In this paper, we use machine learning tools to identify Twitter messages related to monetary policy in a short-time window around the release of policy decisions of three major central banks, namely the ECB, the US Fed and the Bank of England. We then build an hourly measure of similarity between the tweets about monetary policy and the text of policy announcements that can be used to evaluate both the ex-ante predictability and the ex-post credibility of the announcement. We show that large differences in similarity are associated with a higher stock market and sovereign yield volatility, particularly around ECB press conferences. Our results also show a strong link between changes in similarity and asset price returns for the ECB, but less so for the Fed or the Bank of England.
    Keywords: monetarypolicy, centralbankcommunication, financialmarkets, socialmedia, Twitter, USFederalReserve, EuropeanCentralBank, BankofEngland.
    JEL: E44 E52 E58 G14 G15 G41
    Date: 2023–06
  5. By: Donato Masciandaro (Department of Economics, Bocconi University); Paola Profeta (Department of Social and Political Sciences, Bocconi University); Davide Romelli (Department of Economics, Trinity College Dublin)
    Keywords: governance, genderdiversity, centralbanks, monetarypolicy.
    JEL: K23 J16 J16
    Date: 2023–06
  6. By: Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department, National Bank of Georgia); Wim Boonstra (Special Economic Advisor at Rabobank, Endowed Professor at Vrije Universiteit Amsterdam)
    Abstract: A central bank digital currency (CBDC) is a topic that is only going to gain importance as a couple of nations have recently went line with a retail CBDC system, dozens of them are piloting it and there are even more who actively research the topic. In the process, many studies have already identified several important potential benefits of a CBDC as well as potential risks and costs. As is already well understood, a CBDC introduction can have a profound impact on all three monetary policy, financial stability and payment systems. This paper, trying to be a go-to starting point for those just exposed to the topic, thoroughly reviews all the benefits and risks/costs associated with a CBDC in the current literature as well as underlines key areas of this topic that need more research. In addition, we try to lay some ground for systematizing three-dimensional linkages between benefits, costs/risks and design choices by (i) discussing probable design choices needed for each item in the list of benefits and costs/risks to-be-mitigated and (ii) overviewing what other benefits and cost/risk-mitigation aims these design choices may be in conflict with.
    Keywords: Central bank digital currencies, monetary policy, financial stability, payment systems
    JEL: E42 E50 G20
    Date: 2022–09
  7. By: Jesús Fernández-Villaverde; Joël Marbet; Galo Nuño; Omar Rachedi
    Abstract: This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully non-linear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households' precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.
    JEL: D31 E12 E21 E31 E43 E52 E58
    Date: 2023–05
  8. By: Vegard Høghaug Larsen; Nicolò Maffei-Faccioli; Laura Pagenhardt
    Abstract: This paper examines how news coverage of the European Central Bank (ECB) affects consumer inflation expectations in the four largest euro area countries. Utilizing a unique dataset of multilingual European news articles, we measure the impact of ECB-related inflation news on inflation expectations. Our results indicate that German and Italian consumers are more attentive to this news, whereas in Spain and France, we observe no significant response. The research underscores the role of national media in disseminating ECB messages and the diverse reactions among consumers in different euro area countries.
    Date: 2023–05
  9. By: Makoto WATANABE; Tarishi Matsuoka
    Abstract: This paper studies the role of a lender of last resort (LLR) in a monetary model where a shortage of a banks monetary reserves (a liquidity crisis) occurs endogenously. We show that discount window lending by the LLR is welfare improving but reduces banks ex-ante incentive to hold monetary reserves, which increases the probability of a liquidity crisis, and can cause moral hazard in capital investment. We also analyze the combined effects of monetary and extensive LLR policies, such as a nominal interest rate, a lending rate, and a haircut.
    Keywords: Monetary Equilibrium, Liquidity Crisis, Lender of Last Resort, Moral Hazard JEL Classification Number:E40
    Date: 2023–06
  10. By: Masao Fukui; Emi Nakamura; Jón Steinsson
    Abstract: We study the consequences of "regime-induced" exchange rate depreciations by comparing outcomes for peggers versus floaters to the US dollar in response to a dollar depreciation. Pegger currencies depreciate relative to floater currencies and these depreciations are strongly expansionary. The boom is not associated with an increase in net exports, or a fall in nominal interest rates in the pegger countries. This suggests that expenditure switching and domestic monetary policy are not the main drivers of the boom. We develop a financially driven exchange rate (FDX) model in which multiple shocks originating in the financial sector drive exchange rates and households and firms can borrow in foreign currencies. Following a depreciation, UIP deviations lower the costs of borrowing from abroad and stimulate the economy, as in the data. The model is consistent with (unconditional) exchange rate disconnect and the Mussa facts, even though exchange rates have large effects on the economy.
    JEL: F31 F41
    Date: 2023–05
  11. By: Kian Tehranian
    Abstract: This paper assesses the link between central bank's policy rate, inflation rate and output gap through Taylor rule equation in both United States and United Kingdom from 1990 to 2020. Also, it analyses the relationship between monetary policy and asset price volatility using an augmented Taylor rule. According to the literature, there has been a discussion about the utility of using asset prices to evaluate central bank monetary policy decisions. First, I derive the equation coefficients and examine the stability of the relationship over the shocking period. Test the model with actual data to see its robustness. I add asset price to the equation in the next step, and then test the relationship by Normality, Newey-West, and GMM estimator tests. Lastly, I conduct comparison between USA and UK results to find out which country's policy decisions can be explained better through Taylor rule.
    Date: 2023–05
  12. By: Solikin M. Juhro (Bank Indonesia)
    Abstract: This paper elaborates the theoretical and practical perspectives of future central bank policy in emerging market economies (EMEs). With salient thoughts presented to expand broader horizons, a special overview is presented on the experiences and practices of central bank policies in EMEs. For EME central banks, complex challenges are inevitable considering the current state of economic progress, economic endowments, and institutional capacity. Several theoretical assumptions that underlie policy thinking are also substantively not the case for EMEs. These conditions, however, provide broad opportunities and space for central banks in EME countries to deliver policy innovations and breakthroughs, not only from a practical level, but also a theoretical perspective. The implementation of flexible inflation targeting framework (ITF) and the central bank policy mix, as well as the policy trilemma management of an open economy are among many examples of how central bank policy has evolved towards a more integrated framework. Eventually, to become a relevant regulator, the central bank must put extra effort into strengthening policy coordination and institutional arrangements, fostering new sources of growth to support a broader scope of welfare amelioration, while reinforcing the central bank policy mix in the new era
    Keywords: central bank policy mix, integrated policy framework, inflation targeting, central bank in emerging markets
    JEL: E02 E31 E52 E58 E61 F62 G01
    Date: 2023
  13. By: Wellmann, Susanne
    Abstract: We study whether the trade-off between inflation and unemployment still exists in the euro area (EA). Using country-level data for member states of the EA, we estimate a refined specification of the Phillips curve in the spirit of Hazell et al. (2022) deploying a non-tradable price index to measure inflation. We find that the slope of the Phillips curve is small and hence the Phillips curve is flat in the EA, similarly to the US. Moreover, reference estimates based on aggregate data overstate the steepness of the Phillips curve considerably. Our findings imply that the insensitivity of inflation with respect to unemployment over the last decade is a result of firmly anchored inflation expectations.
    Keywords: Inflation, Phillips curve, Expectations, Euro Area
    JEL: E31 D84 F45
    Date: 2023
  14. By: Santiago Camara (Northwestern University)
    Abstract: This paper shows that disregarding the information effects around the European Central Bank monetary policy decision announcements biases its international spillovers. Using data from 23 economies, both Emerging and Advanced, I show that following an identification strategy that disentangles pure monetary policy shocks from information effects lead to international spillovers on industrial production, exchange rates and equity indexes which are between 2 to 3 times larger in magnitude than those arising from following the standard high frequency identification strategy. This bias is driven by pure monetary policy and information effects having intuitively opposite international spillovers. Results are present for a battery of robustness checks: for a sub-sample of “close” and “further away” countries, for both Emerging and Advanced economies, using local projection techniques and for alternative methods that control for “information effects”. I argue that this biases may have led a previous literature to disregard or find little international spillovers of ECBrates
    Keywords: ECB monetary policy; Information Effects; International Spillovers; Emerging Markets; Advanced Economies.
    JEL: F1 F4 G32
    Date: 2023–06
  15. By: Mohammed Ait Lahcen; Garth Baughman; Hugo van Buggenum
    Abstract: We study the nonlinearities present in a standard monetary labor search model modified to have two groups of workers facing exogenous differences in the job finding and separation rates. We use our setting to study the racial unemployment gap between Black and white workers in the United States. A calibrated version of the model is able to replicate the difference between the two groups both in the level and volatility of unemployment. We show that the racial unemployment gap rises during downturns, and that its reaction to shocks is state-dependent. In particular, following a negative productivity shock, when aggregate unemployment is above average the gap increases by 0.6pp more than when aggregate unemployment is below average. In terms of policy, we study the implications of different inflation regimes on the racial unemployment gap. Higher trend inflation increases both the level of the racial unemployment gap and the magnitude of its response to shocks.
    Keywords: Racial inequality; Monetary policy; Unemployment; Inflation; Discrimination
    JEL: E32 E52 J64 E31
    Date: 2023–05–25
  16. By: Giancarlo Corsetti; Bartosz Maćkowiak
    Abstract: We study a model in which policy aims at aggregate price stability. A fiscal imbalance materializes that, if uncorrected, must cause inflation, but the imbalance may get corrected in the future with some probability. By maintaining price stability in the near term, monetary policy can buy time for a correction to take place. The policy gamble may succeed, with price stability preserved indefinitely, or fail, leading to a delayed, possibly large jump in the price level. The resulting dynamics resemble the models of a currency crisis following Krugman (1979) and Obstfeld (1986). Like in Obstfeld’s work, multiple equilibria arise naturally: whether or not price stability is preserved may depend on private agents’ expectations. The model can be reinterpreted as a model of partial default on public debt, in which case it is reminiscent of Calvo (1988).
    Keywords: multiple equilibria, self-fulfilling beliefs, fiscal theory of the price level, inflation expectations, currency crisis, sovereign default
    Date: 2023–11
  17. By: Hassan Afrouzi; Saroj Bhattarai
    Abstract: We derive closed-form solutions and sufficient statistics for inflation and GDP dynamics in multi-sector New Keynesian economies with arbitrary input-output linkages. Analytically, we decompose how production linkages (1) amplify the persistence of inflation and GDP responses to monetary and sectoral shocks and (2) increase the pass-through of sectoral shocks to aggregate inflation. Quantitatively, we confirm the significant role of production networks in shock propagation, emphasizing the disproportionate effects of sectors with large input-output adjusted price stickiness: The three sectors with the highest contribution to the persistence of aggregate inflation have consumption shares of around zero but explain 16% of monetary non-neutrality.
    Keywords: production networks, multi-sector model, sufficient statistics, inflation dynamics, real effects of monetary policy, sectoral shocks
    JEL: E32 E52 C67
    Date: 2023
  18. By: Miguel Ampudia; Russell Cooper; Julia Le Blanc; Guozhong Zhu
    Abstract: This paper studies how household financial choices affect the impact of monetary policy on consumption. Based on micro data from four major euro area countries, we estimate structural parameters to match moments related to asset market participation rates, portfolio shares and wealth-to-income ratios by education and country. The country specific distributions of the marginal propensity to consume out of income and financial wealth are not degenerate, reflecting, among other factors, costs to both asset market participation and portfolio adjustment. Due to the heterogeneity in consumption responses, monetary policy, operating through its effects on household income and asset market returns, has a differential impact on individuals within and across countries. Generally, poor households respond more to the income variations produced by monetary policy innovations while rich households respond more to policy-induced variations in stock returns. Monetary policy has a larger impact on consumption in Italy and Spain compared to France and Germany. An extension of the model linking mortgage payments to monetary policy strengthens these findings.
    Keywords: heterogeneity, marginal propensity to consume, monetary policy
    JEL: E21 E52
    Date: 2023–05
  19. By: Giampiero M. Gallo; Demetrio Lacava; Edoardo Otranto
    Abstract: Central Banks interventions are frequent in response to exogenous events with direct implications on financial market volatility. In this paper, we introduce the Asymmetric Jump Multiplicative Error Model (AJM), which accounts for a specific jump component of volatility within an intradaily framework. Taking the Federal Reserve (Fed) as a reference, we propose a new model-based classification of monetary announcements based on their impact on the jump component of volatility. Focusing on a short window following each Fed's communication, we isolate the impact of monetary announcements from any contamination carried by relevant events that may occur within the same announcement day.
    Date: 2023–05
  20. By: Eiblmeier, Sebastian
    Abstract: Did the Eurosystem's quantitative easing from 2015 to 2018 have differential effects regarding the bank lending volume to different institutional sectors, industry sectors, or types of loans? To investigate this question, this paper employs linked microdata of the German banking system. These allow for computing the volume of bond redemptions at bank level as a measure of banks' exposure to QE. Because when a bond matures, the bank is faced with the decision of whether to reinvest the proceeds into bonds or whether to rebalance into another asset such as loans. When the central bank squeezes bond yields through large-scale purchases, banks with more redemptions have a stronger incentive to rebalance. However, a fixed effects model reveals no significant difference between banks with a high exposure compared to the control group regarding their overall loan growth. Neither can any of the mentioned differential effects be observed. While these findings are at odds with some of the previous empirical literature, they are in line with theories that argue that lending is purely demand-led and any central bank action geared towards the supply side of the loan market merely constitutes 'pushing the string'.
    Keywords: Unconventional monetary policy; portfolio rebalance; differential effects; panel regression
    JEL: C23 E51 E52 G11 G21
    Date: 2023–06
  21. By: Chang Liu; Yinxi Xie
    Abstract: This paper studies the impact government expenditure has on inflation by examining an augmented Phillips curve implied from a structural New Keynesian model. Our estimation results, based on external instruments, show that the augmented Phillips curve has a flatter slope than the canonical specification and that government expenditure has a negative coefficient. Changes in government expenditure account for a substantial portion of inflation variations and provide new insights into the “missing disinflation” puzzle. We also find that inflation and inflation expectations respond negatively to fiscal spending shocks, reaffirming the supply-side channel through which inflation responds to fiscal expansions.
    Keywords: Central bank research; Fiscal policy; Inflation and prices
    JEL: E3 E63
    Date: 2023–06
  22. By: Goran Petrevski
    Abstract: This paper surveys the empirical literature of inflation targeting. The main findings from our review are the following: there is robust empirical evidence that larger and more developed countries are more likely to adopt the IT regime; the introduction of this regime is conditional on previous disinflation, greater exchange rate flexibility, central bank independence, and higher level of financial development; the empirical evidence has failed to provide convincing evidence that IT itself may serve as an effective tool for stabilizing inflation expectations and for reducing inflation persistence; the empirical research focused on advanced economies has failed to provide convincing evidence on the beneficial effects of IT on inflation performance, while there is some evidence that the gains from the IT regime may have been more prevalent in the emerging market economies; there is not convincing evidence that IT is associated with either higher output growth or lower output variability; the empirical research suggests that IT may have differential effects on exchange-rate volatility in advanced economies versus EMEs; although the empirical evidence on the impact of IT on fiscal policy is quite limited, it supports the idea that IT indeed improves fiscal discipline; the empirical support to the proposition that IT is associated with lower disinflation costs seems to be rather weak. Therefore, the accumulated empirical literature implies that IT does not produce superior macroeconomic benefits in comparison with the alternative monetary strategies or, at most, they are quite modest.
    Date: 2023–05
  23. By: Rodney Garratt; Maarten van Oordt
    Abstract: The exchange rates of cryptocurrencies are highly volatile. This paper provides insight into the source of this volatility by developing the concept of a "crypto multiplier, " which measures the equilibrium response of a cryptocurrency's market capitalization to aggregate inflows and outflows of investors' funds. The crypto multiplier takes high values when a large share of a cryptocurrency's coins is held as an investment rather than being used as a means of payment. Empirical evidence shows that the number of coins held for the purpose of making payments is rather small for major cryptocurrencies suggesting large crypto multipliers. The analysis explains why announcements by large investors, celebrity endorsements or financial crises can result in substantial price movements.
    Keywords: Bitcoin, cryptocurrency, exchange rates, monetary economics, risk management
    JEL: E42 E51
    Date: 2023–06
  24. By: De Grauwe, Paul; Foresti, Pasquale
    Abstract: In this article we study fiscal and monetary policies interaction under the assumption that agents have limited cognitive capabilities. To this aim, we employ a behavioral New Keynesian model in which agents’ beliefs generate endogenous waves of optimism and pessimism. The role of such waves is studied under three alternative policy setups: fiscal dominance, monetary dominance and no dominance. Output, inflation, government spending and public debt result to be strongly linked to the agents’ beliefs irrespectively of the policy regime. However, under fiscal dominance the system is characterized by more persistent waves of optimism and pessimism. The consequent higher volatility of the system under fiscal dominance also undermines the central bank’s credibility. We show that in order to minimize these negative effects of fiscal dominance, under such a regime governments should focus on public debt stabilization and leave the stabilization of output and inflation to the monetary authority.
    Keywords: monetary policy; fiscal policy; beliefs; heuristics; animal spirits; Elsevier deal
    JEL: E52 E61 F33 F36
    Date: 2023–06–13
  25. By: Cars Hommes; Julien Pinter; Isabelle Salle
    Abstract: We conduct an experiment within a large-scale household survey on public finance in France, the Netherlands and Italy. We elicit prior beliefs via open-ended questions and introduce a measure of macroeconomic policy literacy. An educational blog post from a central bank (CB) that opposes monetary-financed policies preceded by a short video on public finance can induce less support for monetary-financed proposals and more support for fiscal discipline and CB independence, no matter the respondent’s level of literacy. However, prior beliefs matter, and contradictory information may be polarizing. Information affects the respondents’ views by shifting their inflation and tax expectations associated to these policies.
    Keywords: Central bank research; Fiscal policy; Monetary policy
    JEL: E70 E60 E62 E58 G53 H31 C83
    Date: 2023–06
  26. By: Yeboah, Samuel
    Abstract: This systematic review examines the association between fiscal policy and monetary policy, focusing on their interactions, channels of influence, policy coordination challenges, and the macroeconomic effects of their interactions. The review highlights the importance of time lags, policy mix, policy independence, international interactions, and political economy considerations in shaping the association between fiscal and monetary policies. It also explores the implications of fiscal and monetary policy interactions for financial stability, sectoral effects, public debt management, and the transmission of monetary policy. Furthermore, the review emphasizes the role of institutional frameworks and rules-based policy frameworks in enhancing the effectiveness and credibility of fiscal and monetary policies. Overall, a comprehensive understanding of the association between fiscal and monetary policies is crucial for policymakers to design coordinated and effective policy frameworks that promote macroeconomic stability and sustainable growth.
    Keywords: fiscal policy, monetary policy, policy coordination, time lags, policy mix, policy independence, international interactions, financial stability, sectoral effects, public debt management, the transmission of monetary policy, institutional frameworks
    JEL: E52 E61 E62 E63 H50 H62 H63
    Date: 2022–10–10
  27. By: Birkholz, Carlo; Heinemann, Friedrich
    Abstract: The ECB is about to discontinue its net asset purchases. In December 2021, the ECB Council had already decided to end net purchases under the Pandemic Emergency Purchase Programme (PEPP) by the end of March 2022. Given the very high and persistent inflation, recent remarks from ECB board members indicate that the decision to also discontinue the Asset Purchase Programme (APP) is imminent. The APP includes the Public Sector Purchase Programme (PSPP) as its most important component. Ending all net purchases will then pave the way for a first increase of the key ECB interest rates.
    Date: 2022
  28. By: Diouf, Awa; Carreras, Marco; Santoro, Fabrizio
    Abstract: Many people argue that mobile money has the potential to increase financial inclusion and improve the livelihoods of poor people in Africa. However, while many African governments impose specific taxes on mobile money transactions, very little is known about their effect on the use of mobile money services. This study assesses the short- and long-term impact of the tax on money transfer fees that the Kenyan government introduced in 2013. The tax, more specifically an excise duty, was imposed on fees incurred in all money transactions, including mobile money. It was introduced at 10 per cent and increased to 12 per cent in 2018. Our analysis has two parts. We use country-level data to see if the tax affected the use of mobile money – transaction values and volume – and the number of active mobile money agents. In addition, we use four rounds of nationally representative survey data to estimate changes in the use of mobile money after introduction of the tax. We find that the excise duty did not have a significant impact on different aggregated indicators relating to the use of mobile money. However, survey data shows that the tax may have reduced the rate of increase in use of mobile money services affected by the changes in tax, such as sending and receiving money, compared to services that were not, like savings and paying bills. Importantly, while the amounts transacted may not change, users send and receive money within households less regularly. In addition, the tax seems to have a more detrimental impact on poorer households, which were less likely to be financially included before the tax was introduced. Larger households also show more negative effects after the tax.
    Keywords: Finance,
    Date: 2023
  29. By: Job Nmadu (Fed. University of Tech., Minna, Nigeria); Ezekiel Yisa (Fed. University of Tech., Minna, Nigeria); Usman Mohammed (Fed. University of Tech., Minna, Nigeria); Halima Sallawu (Fed. University of Tech., Minna, Nigeria); Yebosoko Nmadu (Nigeria Defence Academy, Kaduna, Nigeria); Sokoyami Nmadu (Ajayi Crowther University, Oyo, Nigeria)
    Abstract: Forecasting leads to adequate and comprehensive planning for sustainable development. A number of procedures are used to estimate, predict and forecast data, but not all are able to capture the historical path of the data generating process adequately. In view of this, the timeseries characteristics, structural changes and trend of inflation in Nigeria (1996-2022) were analyzed using ARMA, Holt-Winters, spline and other associated models. The results indicated that inflation in Nigeria has remained above acceptable limits in a cyclical trend during the period under study and that there is every possibility that Nigerian inflation would remain above 10% for some time to come. There were six shocks, the major stressors being food inflation, oil and gas prices and wages adjustment. For Nigeria to achieve a stable inflation rate regime of acceptable limits, a robust economic management and intelligence team using a global innovation platform as well as evidenced-based policies which ensure that Nigeria does not swerve away from the path to recovery should be established in consultation with the fiscal, monetary, and research authorities.
    Keywords: b-splines, Holt-Winters smoothing, Nigerian inflation, structural breaks, cyclical trend
    Date: 2022–08
  30. By: Rachel Soloveichik (Bureau of Economic Analysis)
    Abstract: Theoretical inflation diverges from official price statistics when products are unavailable due to stay-in-place behavior or due to stockouts caused by supply chain disruptions. In this paper, the word “theoretical inflation” designates inflation that is consistent with price measurement theory (Diewert and Fox 2020) (Diewert et al. 2019). It does not imply computational mistakes or data problems with official price statistics. This paper uses price measurement theory to develop a simple formula to calculate theoretical inflation. The paper then calibrates that simple formula to pre-pandemic research studying online shopping (Dolfen et al. 2021), tourist behavior (Glaeser, Kolko, and Saiz 2001), and stockouts (Corsten and Gruen 2004). Finally, the paper applies the simple formula to empirical data on product unavailability and calculates theoretical inflation by state and month from March 2020 until December 2021. The paper finds large differences between official inflation and theoretical inflation. The official price level increased 1 percent in 2020 and then another 6 percent during 2021. In contrast, the theoretical price level associated with stay-in-place behavior increased 3 percent in 2020 and then decreased 1 percent in 2021 due to a partial return to normal. In addition, the theoretical price level associated with stockouts was minimal in 2020 and then increased 1 percent in 2021 due to supply chain disruptions. In total, the official inflation acceleration of 0.38 percentage point per month in 2021 diminishes to a theoretical inflation acceleration of only 0.15 percentage point per month. The paper also finds that theoretical inflation is higher in states with higher nominal consumption per capita. Hence, a measure of inequality which tracks the relative standard deviation of state income falls by 3 percent when state income is deflated by theoretical inflation.
    JEL: E31 I18 K32
    Date: 2022–03
  31. By: Matthew Schaffer (Department of Economics, University of North Carolina at Greensboro); Nimrod Segev (Bank of Israel)
    Abstract: This paper suggests a new channel through which central bank Quantitative Easing (QE) policies can amplify aggregate fluctuations. By significantly increasing excess reserve holdings in the banking sector, QE policies reduce liquidity risk and increase banks’ lending potential. Thus, disturbances that increase credit demand generate a stronger increase in lending, further amplifying the shock’s impact. We offer empirical evidence supporting this mechanism by utilizing two sources of variation in the US during the COVID-19 pandemic. First, we use cross-bank variation in mortgage-backed security (MBS) holdings to measure banks’ exposure to QE policies. Second, we use cross-state variation in the per capita Economic Impact Payments (EIP) to quantify the local aggregate demand shock stemming from pandemic-related fiscal relief. Bank-level analysis reveals that while QE is associated with an overall increase in reserves, its impact on credit expansion depends on the magnitude of the EIP-related demand shock. Additionally, state-level evidence suggests increases in credit expansion and house prices following the shock were larger in states with greater banking sector exposure to QE. The results, therefore, suggest that QE amplified the impact of government stimulus programs during COVID-19.
    Date: 2023–02
  32. By: Olga Bilyk; Timothy Grieder; Mikael Khan
    Abstract: We find that prices and costs for consumer-oriented firms moved roughly one-for-one during the COVID-19 pandemic. This means firms fully passed rising costs through to the prices they charged. However, our results are suggestive, given data limitations and the uncertainty associated with estimating markups.
    Keywords: Firm dynamics; Inflation and prices
    JEL: D2 D4 E2 E3 L1
    Date: 2023–06

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