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on Monetary Economics |
| By: | Stempel, Daniel; Zahner, Johannes |
| Abstract: | In the euro area, monetary policy is conducted by a single central bank for 20 member countries. However, countries are heterogeneous in their economic development, including their inflation rates. This paper combines a New Keynesian model and a neural network to assess whether the European Central Bank (ECB) conducted monetary policy between 2002 and 2022 according to the weighted average of the inflation rates within the European Monetary Union (EMU) or reacted more strongly to the inflation rate developments of certain EMU countries. The New Keynesian model first generates data which is used to train and evaluate several machine learning algorithms. They authors find that a neural network performs best out-of-sample. They use this algorithm to generally classify historical EMU data, and to determine the exact weight on the inflation rate of EMU members in each quarter of the past two decades. Their findings suggest disproportional emphasis of the ECB on the inflation rates of EMU members that exhibited high inflation rate volatility for the vast majority of the time frame considered (80%), with a median inflation weight of 67% on these countries. They show that these results stem from a tendency of the ECB to react more strongly to countries whose inflation rates exhibit greater deviations from their long-term trend. |
| Keywords: | New Keynesian Models, Monetary Policy, European Monetary Union, Neural Networks, Transfer Learning |
| JEL: | E58 C45 C53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:188&r=mon |
| By: | Fungáécová, Zuzana; Kerola, Eeva; Laine, Olli-Matti |
| Abstract: | This study considers the pass-through of different ECB monetary policy measures to bank corporate lending rates of different maturities during 2010-2020. We find changes in the pass-through as policy rates first dip below zero in 2014 and again when negative interest rates become more persistent during the "low-for-long" period beginning in 2016. Overall, the transmission of monetary policy to bank lending rates appears to have become less efficient below zero, particularly in the case of corporate loans with short maturities. The effect is most pronounced for banks that did not lower their own retail deposit rates below zero or held significant amounts of negative interest-bearing central bank deposits. We see a reversal in the pass-through during the low-for-long period with banks raising their lending rates as monetary policy is eased. Unconventional monetary policy measures such as targeted longer-term refinancing operations (TLTROs) and quantitative easing (QE) appear to have mitigated these contractionary effects, even during the low-for-long period. In our examination of below-zero policy tools, we provide evidence that negative policy rates and TLTROs complement each other, while negative policy rates and QE do not. |
| Keywords: | negative interest rates, unconventional monetary policy, lending rates, bank lending channel, euro area |
| JEL: | E52 E58 G21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:112023&r=mon |
| By: | Leef H. Dierks (Lübeck University of Applied Sciences, Germany) |
| Abstract: | Motivated by the 2022 uptick in headline inflation and the marked shift towards more restrictive monetary policies globally, this paper examines the sacrifice ratio, i.e., the percentage cost of actual production lost to every one percentage point decrease in (trend) inflation, for selected Southeast Asian economies. Results indicate that upon adopting a contractive monetary policy, GDP growth dropped by up to 0.5%, confirming that monetary authorities’ disinflationary policies typically trigger declines in both output and employment. However, as even minor adjustments to the way of determining the sacrifice ratio lead to varying results, caution ought to be applied when deriving potential (monetary) policy recommendations. |
| Keywords: | Monetary Policy, Interest Rates, Inflation, Sacrifice Ratio, (Trend) Output |
| JEL: | E31 E52 E58 E65 E71 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:sea:wpaper:wp50&r=mon |
| By: | Bozhechkova Alexandra (Gaidar Institute for Economic Policy); Trunin Pavel (Gaidar Institute for Economic Policy); Knobel Alexander (Gaidar Institute for Economic Policy) |
| Abstract: | In 2022, the Russian economy experienced a profound negative shock associated with the imposition of sanctions against Russia by a number of developed countries, including the freeze of the Bank of Russia’s international reserve assets, Russian banks being cut out of international payment systems, restrictions on imports of Russian goods and services and exports of technologies to Russia, and some other measures. The shock gave rise to pronounced instability in Russia’s financial market and forced the Central Bank of the Russian Federation to sharply tighten its monetary policy in order to prevent the outflow of funds from the banking system. |
| Keywords: | Russian economy, monetary policy, money market, exchange rate, inflation, balance of payments, fiscal policy |
| JEL: | E31 E43 E44 E51 E52 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2023-1273&r=mon |
| By: | Christian Buelens |
| Abstract: | This paper shows that internet search intensity for the term “inflation” provides a meaningful direct measure of attention to inflation by households across the euro area. In support of the theory of rational inattention, it finds that inflation attention is contingent on the level of inflation and increases in it in a non-linear manner, pointing to different inflation attention-regimes. As inflation increases, economic agents abandon their state of inattention at an accelerating rate, which may have lasting implications on inflation expectations and the way they are formed. Attention to inflation in some euro area countries is also found to be triggered by other factors, notably monetary policy decisions or a deterioration in households’ economic situation. This suggests that households do establish a link between inflation and monetary policy decisions, and think about inflation when economic sentiment drops. However, there is strong heterogeneity across the euro area, both in terms of inflation attention levels and sensitivity. These findings have implications for public communication in high inflation attention-regimes and for the modelling of inflation expectations when there are information frictions. |
| JEL: | C82 D83 D84 E31 E52 E58 E7 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:183&r=mon |
| By: | Isil Erel; Jack Liebersohn; Constantine Yannelis; Samuel Earnest |
| Abstract: | Financial technology has reshaped commercial banking. It has the potential to radically alter the transmission of monetary policy by lowering search costs and expanding bank markets. This paper studies the reaction of online banks to changes in federal fund rates. We find that these banks increase rates that they offer on deposits significantly more than traditional banks do. A 100 basis points increase in the federal fund rate leads to a 30 basis points larger increase in rates of online banks. Consistent with the rate movements, online bank deposits experience inflows, while traditional banks experience outflows during monetary tightening in 2022. The findings are consistent across banking markets of different competitiveness and demographics. Our findings shed new light on the role of online banks in interest rate pass-through and deposit channel of monetary policy. |
| JEL: | E52 E58 G21 G23 G28 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31380&r=mon |
| By: | Ozili, Peterson K |
| Abstract: | This paper presents some theories that support central bank digital currency development and its usefulness. The theories provide useful explanations for the development and use of central bank digital currency in the economy. Some theories show that information about central bank digital currency, as well as the perceived usefulness and ease of use of central bank digital currency, are crucial for its success. Other theories show that central bank digital currency can facilitate the flow of funds to economic agents, and enhance the functioning of the economic system, thereby contributing to economic growth. These theories are useful to economists, policymakers and researchers who are interested in how central bank digital currency affects economic activities. |
| Keywords: | CBDC, central bank digital currency, theories. |
| JEL: | E51 E52 E58 E59 O31 O32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117806&r=mon |
| By: | NAKAJIMA, Jouchi; 中島, 上智 |
| Abstract: | This study uses the Bank of Japan's Tankan (Short-Term Economic Survey of Enterprises in Japan) results to estimate the long-run time series of Japanese firms' inflation expectations since 1990. In the Tankan, the series for "consumer price inflation expectations" and "output price inflation expectations" go back to 2014, while that for "output price DI" features a longer time series. Using the relationship between these series for 2014–2022, we estimate one-year ahead consumer price inflation expectations for 1990–2013 based on the output price DI. The firms' inflation expectations obtained are found to have information that improves forecast accuracy when forecasting consumer price inflation, which is not included in the lag in inflation or the output gap, and enhances forecast accuracy more than using economists' inflation expectations. |
| Keywords: | Inflation expectations, Output price expectations, Tankan |
| JEL: | C22 E31 E37 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-131&r=mon |
| By: | Ozili, Peterson K |
| Abstract: | The study investigates the impact of monetary policy on the level of financial inclusion in the big-five emerging market countries from 2004 to 2020. Several indicators of financial inclusion and the central bank interest rate were used in the analysis. It was found that the monetary pol-icy rate has a mixed effect on financial inclusion, and the effect depends on the dimension of fi-nancial inclusion examined. Specifically, a high monetary policy rate has a significant negative impact on financial inclusion through a reduction in the number of depositors in commercial banks. A high monetary policy rate also has a significant positive impact on financial inclusion through greater bank branch expansion. The policy implication is that both contractionary and expansionary monetary policies lead to positive improvements in specific indicators of financial inclusion, because increase in interest rate leads to bank branch expansion which is beneficial for financial inclusion and decrease in interest rate leads to increase in the number of depositors in commercial banks which is also beneficial for financial inclusion. It was also found that the rising monetary policy rate has a negative effect on all indicators of financial inclusion in the post-financial crisis period. Overall, the effect of monetary policy on financial inclusion seem to depend on the monetary policy tool used by the monetary authority and the dimension of financial inclusion examined. The monetary authorities should pay attention to how their monetary policy choices might affect the level of financial inclusion and reduce the benefits that society gains from financial inclusion. |
| Keywords: | monetary policy, interest rate, financial inclusion, access to finance, emerging markets |
| JEL: | E51 E52 E58 G21 |
| Date: | 2023–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117804&r=mon |
| By: | Kaiji Chen; Yiqing Xiao; Tao Zha |
| Abstract: | According to the conventional bank lending channel of monetary policy, wholesale funding in economies with well-developed financial markets moves negatively with retail deposits in response to changes in the monetary policy rate, thereby weakening the transmission of monetary policy. We present a theoretical model to demonstrate that in economies with financial repression, (i) retail deposits and wholesale funding comove positively in response to changes in the policy rate and (ii) wholesale funding strengthens, rather than weakens, the transmission of monetary policy to bank loans. We support these findings by bank-level evidence with deposit rate ceilings. |
| JEL: | E02 E5 G11 G12 G28 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31396&r=mon |
| By: | Mariusz Kapuściński (Narodowy Bank Polski) |
| Abstract: | In this research note I provide updated estimates of the role of the bank lending channel in monetary policy transmission in Poland. Previous estimates were described in Kapuściński (2017). The bank lending channel is defined following Disyatat (2011), as the amplification of the effect of monetary policy on bank lending, due to its impact on bank balance sheet strength. As before, the estimates are based on counterfactual impulse response functions from panel vector autoregressive models. Differences include not only the longer time series dimension of available data, but also enhancements in terms of the number of banks covered, data processing and coefficient uncertainty coverage. I find the bank lending channel to operate differently in cooperative and commercial banks. Nevertheless, estimates for the latter, significantly larger part of the banking sector are broadly in line with previous ones. 18 percent of a decline in bank lending after the tightening of monetary policy can be attributed to the bank lending channel. |
| Keywords: | transmission mechanism of monetary policy, bank lending channel. |
| JEL: | E52 G21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:359&r=mon |
| By: | Gerdesmeier, Dieter; Reimers, Hans-Eggert; Roffia, Barbara |
| Abstract: | The relationship between inflation and real GDP growth is one of the most widely researched topics in macroeconomics. At the same time, it is certainly not exaggerated to claim that this nexus also stands at the heart of monetary policy, given the fact that low inflation in combination with high and sustained output growth should be the central objective of any sound economic policy. The latter notion becomes even more obvious, when taking account of the fact that many central banks all over the world have selected target levels for inflation and communicated them to the public. Against this background, it is of utmost importance for central banks to know more about the nature and form of the relationship between inflation and real GDP. This study tries to shed more light on the concrete shape of this relationship for the euro area and, more specifically, on the issue of possible regime shifts therein. The analysis provides strong evidence for non-linear effects in the euro area. As a by-product, the methods used allow for a quantification of the point of switch across the different regimes and it is found that this breakpoint closely matches the ECB's previous definitions of price stability and its new inflation target of 2%. While these results look encouraging, further research in this area seems warranted. |
| JEL: | E31 E52 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hswwdp:012023&r=mon |
| By: | Mariusz Kapuściński (Narodowy Bank Polski) |
| Abstract: | In this research note I provide the first estimates of the transmission of monetary policy in Poland to risk-free rates, WIRON rates. I take into account the effects of changes in the policy rate, in the width of the standing facilities corridor and in the reserve position of the banking sector. I also make comparisons to the transmission to POLONIA and WIBOR rates. I find both the overnight and term WIRON rates to be affected by interest rate policy and other components of the operational framework of Narodowy Bank Polski. This makes the transmission similar as to the POLONIA rate, but to some extent different than to WIBOR rates. For the term rates, by construction, there are differences in transmission lags. This might have implications for the transmission mechanism of monetary policy in Poland in the future. The extent will depend on the character of changes in the policy rate (unexpected versus expected), and the term of the rate chosen for financial contracts and instruments. Given the limited number of observations, the conclusions should be treated with caution. |
| Keywords: | transmission mechanism of monetary policy, interest-rate pass through, risk-free rates, interest rate benchmark reform. |
| JEL: | E43 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:358&r=mon |
| By: | Ryan Niladri Banerjee; Valerie Boctor; Aaron Mehotra; Fabrizio Zampolli |
| Abstract: | We examine how changes in fiscal deficits affect near-term future inflation in a panel of emerging market and developing economies (EMDEs). Using a novel method for quantile panel regressions with fixed effects, we find that an increase in the fiscal deficit has highly non-linear effects on inflation - that is, a larger impact on upside tail risks than on average inflation. These effects are substantially larger in EMDEs than in advanced economies. We then show that an increase in the fiscal deficit raises the risk of future currency depreciation which magnifies the initial inflation response. This external channel is closely related to sovereign risk, being greater when the share of sovereign debt in foreign currency is large or when a sizeable share of sovereign debt is held by foreign residents. Finally, we find that the effects of fiscal deficits on future inflation are strongly attenuated in inflation targeting regimes and also influenced by constraints on monetary policy. |
| Keywords: | fiscal deficit, inflation, exchange rate depreciation, sovereign risk, emerging market and developing economies, original sin, inflation targeting |
| JEL: | E31 E52 E62 E63 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1110&r=mon |
| By: | Simon Gilchrist; Raphael Schoenle; Jae Sim; Egon Zakrajsek |
| Abstract: | During the 2010–12 eurozone crisis, deviations of price and wage dynamics from those implied by canonical Phillips curves were systematically related to differences in financial strains across countries. Most notably, markups in financially "weak" (periphery) countries rose, while those in financially "strong" (core) countries declined. In a monetary union model, where financial frictions interact with the firms' pricing decisions because of customer-market considerations, firms in the periphery maintain cashflows in response to an adverse financial shock by raising markups in both domestic and export markets, while firms in the core reduce markups, undercutting their financially constrained competitors to gain market share. In this framework, a unilateral fiscal-devaluation-style policy by the periphery stabilizes the local economy by improving the condition of firm balance sheets and by boosting household demand-it does not, however, reverse the real exchange rate appreciation in the periphery. |
| Keywords: | eurozone, financial crisis, monetary union, customer markets, inflation dynamics, markups, fiscal devaluation |
| JEL: | E31 E32 F44 F45 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1107&r=mon |
| By: | Jean-Guillaume Sahuc (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Grégory Levieuge |
| Abstract: | Empirical evidence suggests that bank lending rates are downward rigid: banks tend to adjust their rates more slowly and less completely to short-term market rates decreases than to increases. We investigate the macroeconomic consequences of this downward interest rate rigidity by introducing asymmetric bank lending rate adjustment costs in a macrofinance dynamic stochastic general equilibrium model. Calibrating the model to the euro area economy, we find that the difference in the initial response of GDP to positive and negative economic shocks of similar amplitude can reach up to 25%. This means that a central bank would have to cut its policy rate much more to obtain a symmetric medium-run impact on GDP. We also show that downward interest rate rigidity is stronger when policy rates are stuck at their effective lower bound, further disrupting monetary policy transmission. These findings imply that neglecting asymmetry in retail interest rate adjustments may yield misguided monetary policy decisions. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03361418&r=mon |
| By: | Daniel Monteiro |
| Abstract: | We develop a dynamic stochastic general equilibrium model of a monetary union and employ it to study in an integrated manner different macrofinancial disturbances and related policy options. The model is calibrated to the euro area, comprises two regions subject to real, nominal and financial rigidities, and features microfounded regional banking sectors and portfolio selection mechanisms allowing for empirically-consistent properties. Among the questions to which we devote our analysis are the transmission of conventional and unconventional monetary policy, the effects of private- and government-sector default risk, the implications of different macroprudential policies, the endogenous emergence of country risk premia in a context of crossborder financial flows, and the stabilising properties of joint sovereign debt issuance. |
| JEL: | E32 E44 E52 F36 F45 G28 H63 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:188&r=mon |
| By: | Dück, Alexander; Le, Anh H. |
| Abstract: | Climate change has become one of the most prominent concerns globally. In this paper, we study the transition risk of greenhouse gas emission reduction in structural environmental-macroeconomic DSGE models. First, we analyze the uncertainty in model prediction on the effect of unanticipated and pre-announced carbon price increases. Second, we conduct optimal model-robust policy in different settings. We find that reducing emissions by 40% causes 0.7% - 4% output loss with 2% on average. Pre-announcement of carbon prices affects the inflation dynamics significantly. The central bank should react slightly less to inflation and output growth during the transition risk. With optimal carbon price designs, it should react even less to inflation, and more to output growth. |
| Keywords: | Climate change, Environmental policy, Optimal policy, Transition risk, Model uncertainty, DSGE models |
| JEL: | Q58 E32 Q54 C11 E17 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:187&r=mon |
| By: | António Afonso; José Alves; Serena Ionta |
| Abstract: | We study the effect of monetary surprise shocks on real output and the price level, conditioned on different fiscal sustainability regimes in the period 2001Q4-2021Q4. First, we estimate time-varying fiscal sustainability coefficients based on Bohn’s (1998) approach through Schlicht’s (2003) method. Then, by taking these sustainability coefficients in a nonlinear local projection model for the Euro Area (aggregate data), Germany, Italy, and Portugal, we analyze the interaction between both policies under (un)sustainable fiscal regimes. Our results show that in a Ricardian regime, output and prices respond to monetary tightening by contracting, while in a non-Ricardian regime the effect on output and price levels is negligible (or even positive). The dependence of the effectiveness of monetary policy on fiscal solvency is valid for Euro-Area and all the countries assessed, and does not depend on whether a country is “core” or “periphery”, but on the policy conduct over time. |
| Keywords: | monetary surprises, fiscal sustainability, local-projection models, fiscal-monetary policy mix, Euro area, Germany, Italy, Portugal |
| JEL: | C32 E58 E62 E63 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02812023&r=mon |
| By: | Ben Bernanke (Brookings Institution); Olivier J Blanchard (Peterson Institute for International Economics) |
| Abstract: | Bernanke and Blanchard answer the question posed by the title by specifying and estimating a simple dynamic model of prices, wages, and short-run and long-run inflation expectations. The estimated model allows them to analyze the direct and indirect effects of product-market and labor-market shocks on prices and nominal wages and to quantify the sources of US pandemic-era inflation and wage growth. The authors find that, contrary to early concerns that inflation would be spurred by overheated labor markets, most of the inflation surge that began in 2021 was the result of shocks to prices given wages. These shocks included sharp increases in commodity prices, reflecting strong aggregate demand, and sectoral price spikes, resulting from changes in the level and sectoral composition of demand together with constraints on sectoral supply. However, although tight labor markets have thus far not been the primary driver of inflation, the authors find that the effects of overheated labor markets on nominal wage growth and inflation are more persistent than the effects of product-market shocks. Controlling inflation will thus ultimately require achieving a better balance between labor demand and labor supply. |
| Keywords: | inflation, monetary policy, aggregate demand, Beveridge curve, commodity prices, shortages, inflation expectations |
| JEL: | E31 E37 E52 E6 E24 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp23-4&r=mon |
| By: | Annamaria Viterbo (Associate Professor of International Law, PhD - Department of Law, University of Turin, Italy) |
| Abstract: | The paper describes the main features of the Special Drawing Rights (SDRs), the international reserve asset issued by the International Monetary Fund (IMF). After the historic allocation of SDRs equivalent to US $650 billion in August 2021, it has been argued that the wealthiest economies should ‘redirect’ (or ‘re-channel’) at least some of their new SDRs to the benefit of the most vulnerable countries. The paper discusses how to overcome current legal challenges to facilitate the reallocation of the SDRs held by Euro area countries to an ambitious Next Generation Africa plan. |
| Keywords: | Special Drawing Rights, SDRs, International Monetary Fund, Africa, Europe |
| JEL: | E43 E58 F33 F38 F41 F42 G15 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:azz:rpaper:598&r=mon |
| By: | Keen, Benjamin; Strong, Christine |
| Abstract: | This paper builds a theoretical model where corrupt government officials select the optimal amount of government spending directed toward building wealth for themselves and political allies. We refer to this type of government expenditures as rent extraction spending. Our results show that more government corruption leads to higher rent extraction spending, increased inflation, additional taxation, and lower non-rent extraction spending. The increases in inflation and rent extraction spending, however, are more muted when the corrupt country is a member of a currency union. |
| Keywords: | Corruption; Rent Extraction; Optimal Fiscal Policy; Optimal Monetary Policy. |
| JEL: | E52 E61 E62 O23 |
| Date: | 2023–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117857&r=mon |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Yolande E. Ngoungou (Yaoundé, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | This study assesses nexuses between mobile money innovations and health performance in terms of total life expectancy in 43 countries in Sub-Saharan Africa employing data for the period 2004-2018. Four mobile money innovation dynamics are proxied with registered mobile money agents and active mobile money agents. The empirical evidence is based on quantile regressions. The findings overwhelmingly show that mobile money innovations are relevant in improving health performance or total life expectancy exclusively in bottom quantiles of the conditional distribution of total life expectancy. In other words, countries with below-median levels of total life expectancy are more susceptible to benefit from mobile money innovations compared to countries with above-median levels of total life expectancy. It follows that common or general policy measures on the linkage between mobile money innovations and health performance are unlikely to succeed unless attendant policies are contingent on initial levels of health performance and hence, tailored differently across countries with various initial levels of health performance. More policy implications are discussed. |
| Keywords: | Mobile phones; financial inclusion; health; sub-Saharan Africa |
| JEL: | O40 G20 I10 I32 I20 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:23/038&r=mon |
| By: | Steininger, Lea; Richtmann, Mathis L. |
| Abstract: | The permanent international lender of last resort consists of a swap line network between six major central banks (C6), centring around the US Federal Reserve. Arguably, this network is a solution to a long-debated problem as it provides public emergency liquidity provision to the world’s largest financial market, the Eurodollar market. Drawing on exclusive interviews with monetary technocrats as well as a textual analysis of Federal Open Market Committee meeting transcripts over the course of 14 years, we reconstruct how this facility came into being. Building on Kalyanpur and Newman (2017) and Braun (2015), we develop an interpretive framework of bricolage to contextualise its formation: in times of crisis, central bankers rely on retrospection, experimentation and creative re-deployment to develop their tools. In non-crisis times, however, the tools that prevail are those that offer what we call ‘bureaucratic familiarity’: the C6 swap line network became a permanent feature of international finance because technocrats had got used to it. |
| Date: | 2023–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:44874467&r=mon |
| By: | triyawan, andi; cahyo, eko nur; Djayusman, Royyan Ramdhani |
| Abstract: | This research aims to analyze how exchange rates, inflation, exports, and imports have influenced the economic growth of Qatar between 2000 and 2020. The study utilizes multiple linear regression as its methodology and obtains data on exchange rates, exports, imports, and inflation from the World Bank. The findings of the study indicate that changes in the exchange rate, inflation, exports, and imports all have an impact on Qatar's GDP. In other words, an improvement in these factors leads to an increase in GDP, while a negative influence on these factors results in a decline in GDP. Additionally, the study reveals a positive correlation between Qatar's exchange rate and its economic growth. This means that when the exchange rate rises, so does the level of economic development. |
| Date: | 2023–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:tey5p&r=mon |
| By: | Sai Ma; Tim Schmidt-Eisenlohr |
| Abstract: | This paper provides evidence that the U.S. dollar affects countries’ exports through the financial channel of the exchange rate (Bruno and Shin (2015)). Using global data on trade between countries whose currency is not the U.S. dollar, it documents a positive relationship between the dollar and import prices. Importantly, this effect is stronger when the dollar share of the exporter’s foreign borrowing is larger. Results strengthen substantially when instrumenting the dollar by U.S. domestic housing activity. Then, a dollar appreciation increases import prices and decreases import quantities, with effects being proportional to the source country’s foreign dollar borrowing share. |
| Keywords: | dollar, dominant currency, financial channel, international trade |
| JEL: | F14 F31 G15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10495&r=mon |
| By: | Csaba Burger (Magyar Nemzeti Bank (the Central Bank of Hungary)); Dariusz Wojcik (University of Oxford, School of Geography and the Environment) |
| Abstract: | Incorporating climate change considerations in central bank decisions has been fraught with legal and technical controversies. Legal, because interpretations of central bank mandates in relation to sustainability has been widely cited as hurdles to the discussion of climate change; and technical, because no methodology used to exist to assess and to measure the impact of climate risks on financial stability. This paper first analyses the spatial and temporal process climate change-related risk analysis spread among central banks by text mining - counting relevant bigrams - in 941 European financial stability reports of 39 central banks in Europe. It then maps climate risk relevant references of these reports. The study argues that geographical proximity played a significant role in the spread of the climate friendly central bank mandate interpretations. It also shows that the ECB, together with representatives of EU national central banks and their technical know-how, played a pivotal role in turning an innovation from being a novel research method into an accepted analytical framework. At the beginning of 2023, it now paves the way a towards a Basel-conform banking regulation within the EU, which reflects climate change risks too. |
| Keywords: | financial geography, central bank mandates, climate change, financial stability, text mining, bigram search, fiduciary duty |
| JEL: | E58 Q54 G17 G21 L38 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2023/150&r=mon |
| By: | Joshua Bosshardt (Federal Housing Finance Agency); Marco Di Maggio (Harvard University); Ali Kakhbod (University of California, Berkeley); Amir Kermani (University of California, Berkeley) |
| Abstract: | This paper studies how tightening monetary policy transmits to the economy through the mortgage market and sheds new light on the distributional consequences at both the individual and regional levels. We find that mortgage supply factors, specifically restrictions on the debt-to-income (DTI) ratio, account for the majority of the decline in mortgages. These effects are even more pronounced for young and middle-income borrowers who find themselves excluded from the credit market. Also, regions with historically high DTI ratios exhibited greater reductions in mortgage originations, house prices, and consumption. |
| Keywords: | interest rates, mortgage lending, house prices, debt-to-income (DTI) |
| JEL: | G21 E43 G51 |
| URL: | http://d.repec.org/n?u=RePEc:hfa:wpaper:23-03&r=mon |
| By: | Karol Szafranek (Narodowy Bank Polski); Grzegorz Szafrański (Narodowy Bank Polski); Agnieszka Leszczyńska-Paczesna (Narodowy Bank Polski) |
| Abstract: | Following recent exceptional events in the world economy inflation increased remarkably across most countries, reinvigorating the prevalent discussion on the sources of consumer price dynamics. We analyse this issue for the small open economy of Poland by means of the Bayesian structural VAR. The model describes the evolution of eight key macroeconomic variables and is identified with a set of zero and sign restrictions. This framework, applicable also to other small open economies, provides sound economic interpretation of three domestic and five external shocks, of which two are country-specific and the remaining three are purely global. In a robust manner we show that country-specific energy price and global supply shocks mostly determine the recent inflation surge in Poland. We illustrate that inflation response to these two shocks has become markedly more persistent after the outbreak of the Covid-19 pandemic. We also demonstrate that the choice of an inadequate energy prices proxy may result in the understated importance of the energy price shock, whereas accounting for recent geopolitical threats and other exogenous events does not alter our baseline findings. For policy makers, we show that counterfactual inflation net of external shocks is far lower, but has recently increased as well. |
| Keywords: | Inflation decomposition, Bayesian SVAR model, energy prices, supply disruptions, domestic and external shocks. |
| JEL: | C11 C32 C51 E31 Q43 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:357&r=mon |
| By: | Pascal Kieren; Christian König-Kersting; Robert Schmidt; Stefan Trautmann; Franziska Heinicke |
| Abstract: | We study first-order and higher-order inflation expectations of German households and firms elicited from surveys. The data allows to shed light on the relation between different orders of beliefs, and to derivate implications for noisy-information models with infinite regress. Moreover, since the elicited data is identical for households and firms, it also allows studying whether the relation between first-order and higher-order beliefs differs between the two samples. While we find that this relation is mostly identical between households and firms in our data, we identify differences to previously elicited data in the literature. We discuss potential sources for these differences and their theoretical implications. |
| Keywords: | Inflation expectations, higher-order beliefs, noisy-information models, surveys |
| JEL: | D84 E31 G17 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2023-10&r=mon |
| By: | Jakub Mućk (Narodowy Bank Polski and SGH Warsaw School of Economics); Łukasz Postek (Narodowy Bank Polski and University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | This article quantifies the effects of supply chains disruptions on inflation in European economies. We apply the local projection method in a panel framework and estimate responses of nine measures of consumer and producer inflation to shortages in materials and equipment reported by enterprises in the business surveys conducted by the European Commission. We find that supply chains disruptions are proinflationary for all considered measures of inflation, and a larger effect can be observed for inflation of prices of goods rather than services. The peak of impulse responses can be observed 4-6 quarters after shock, while the effect usually dies out after 8-12 quarters. The forecast error variance decomposition (FEVD) suggests that supply chain disruptions are much more important in explaining inflation changes at medium- rather than short-run forecast horizon. Moreover, supply chain shocks seem to matter relatively more for the variance of inflation of consumer prices of goods than for other measures of inflation. Interestingly, the positive estimates of the impact of supply chains disruptions on inflation can be related mainly to the period corresponding with the COVID-19 pandemics as well as the full-scale invasion of Ukraine and may exhibit asymmetric or regime-switching nature. |
| Keywords: | supply chains shock, inflation, local projection, panel data. |
| JEL: | E31 E32 F41 C33 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:360&r=mon |
| By: | Andrea Fabiani; Martha López; José-Luis Peydró; Paul E. Soto |
| Abstract: | We show that capital controls (CC), by slowing-down firm debt-growth in the boom, improve firm performance during crises. Exploiting a tax on foreign-currency (FX) debt inflows in Colombia before the Global Financial Crisis (GFC) and multiple firm-level and loan-level administrative datasets, we find that CC reduce FX-debt inflows. Firms with weaker local banking relation nships cannot fully substitute FX-debt with domestic-debt, thereby reducing firm-level total debt and imports during the boom. However, by preemptively reducing firm-level debt, CC boost exports and employment during the subsequent GFC, especially for financially-constrained firms. Moreover, CC do not significantly alter credit allocation between productive and unproductive firms. **** RESUMEN: Mostramos que los controles de capital (CC), al desacelerar el crecimiento de la deuda de las empresas en el auge, mejoran el desempeño en firmas durante las crisis. Aprovechando un impuesto sobre las entradas de deuda en moneda extranjera (ME) en Colombia antes de la Crisis Financiera Global (CFG) y múltiples bases de datos administrativos a nivel de empresa y préstamo, encontramos que CC reduce las entradas de deuda en ME. Las empresas con relaciones bancarias locales más débiles no pueden sustituir completamente la deuda en divisas por deuda local, lo que reduce la deuda total a nivel de empresa y las importaciones durante el auge. Sin embargo, al reducir de manera preventiva la deuda a nivel de empresa, CC impulsa las exportaciones y el empleo durante la CFG, especialmente para las empresas con limitaciones financieras. Además, CC no altera significativamente la asignación de crédito entre empresas productivas e improductivas. |
| Keywords: | capital controls, firm FX-debt, real effects, macroprudential policy, capital inflows, crises, controles de capital, deuda en moneda extranjera, efectos reales, política macroprudencial, entradas de capital, crisis |
| JEL: | E58 F34 F38 G01 G21 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1244&r=mon |