nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒09‒04
33 papers chosen by
Bernd Hayo, Philipps-Universität Marburg

  1. Measuring Household Inflation Perceptions and Expectations: The Effect of Guided vs Non-Guided Inflation Questions By Bernd Hayo; Pierre-Guillaume Méon
  2. The term structure of inflation forecasts disagreement and monetary policy transmission By Alessandro Barbera; Dora Xia; Sonya Zhu
  3. The pass-through from inflation perceptions to inflation expectations By Huber, Stefanie J.; Minina, Daria; Schmidt, Tobias
  4. Analysis of the dynamic of inflation process in Nigeria: An application of GARCH modelling By Ekpeyong, Paul
  5. Inflation and entry costs in a monetary search model By Ryoji Hiraguchi; Keiichiro Kobayashi
  6. On the empirical relevance of the exchange rate as a shock absorber at the zero lower bound By Finck, David; Hoffmann, Mathias; Hürtgen, Patrick
  7. The Distributional Impact of Money Growth and Inflation Disaggregates: A Quantile Sensitivity Analysis By Matteo Iacopini; Aubrey Poon; Luca Rossini; Dan Zhu
  8. Implementing Yield Curve Control Measures into the CNB Core Forecasting Model By Frantisek Brazdik; Karel Musil; Stanislav Tvrz
  9. (Shadow) money without a central bank: towards a theory of monetary time By Gabor, Daniela
  10. Trust bridges and money flows By Tobias Adrian; Rodney Garratt; Dong He; Tommaso Mancini-Griffoli
  11. Monetary policy rules under bounded rationality By Dobrew, Michael; Gerke, Rafael; Kienzler, Daniel; Schwemmer, Alexander
  12. Drivers of Large Recessions and Monetary Policy Responses By Giovanni Melina; Stefania Villa
  13. Interest Rate Surprises: A Tale of Two Shocks By Ricardo Nunes; Ali Ozdagli; Jenny Tang
  14. The Long-Run Phillips Curve is ... a Curve By Guido Ascari; Paolo Bonomolo; Qazi Haque
  15. How to measure inFLAtion volatility. A note By Alfredo García-Hiernaux; María T. González-Pérez; David E. Guerrero
  16. Long-term deposit funding and demand for central bank funds: Evidence from targeted longer-term refinancing operations By Fudulache, Adina-Elena; Goetz, Martin R.
  17. The Norwegian overnight interbank market during the Covid pandemic By Q. Farooq Akram; Jon H. Findreng; Lyndsie Smith
  18. Current Account Balance and External Adjustment in Turkiye By Hakan Kara; Cagri Sarikaya
  19. Underlying inflation and asymetric risks By Hervé Le Bihan; Danilo Leiva-León; Matías Pacce
  20. The Social Meaning of Mobile Money: Willingness to Pay with Mobile Money in Bangladesh By Jean N. Lee; Jonathan Morduch; Saravana Ravindran; Abu S. Shonchoy
  21. Forecasting banknote circulation during the COVID-19 pandemic using structural time series models By Bartzsch, Nikolaus; Brandi, Marco; de Pastor, Raymond; Devigne, Lucas; Maddaloni, Gianluca; Posada Restrepo, Diana; Sene, Gabriele
  22. Financially sustainable optimal currency areas By André Cartapanis; Marie-Hélène Gagnon; Céline Gimet
  23. The words have power: the impact of news on exchange rates By Teona Shugliashvili
  24. Sovereign Debt Issuance and Transformation of the Monetary Architecture in Prussia and the German Empire, 1740-1914 By Murau, Steffen
  25. Mobile money innovations, income inequality and gender inclusion in sub-Saharan Africa By Simplice A. Asongu; Peter Agyemang-Mintah; Joseph Nnanna; Yolande E. Ngoungou
  26. Measuring the natural interest rate for the Macedonian economy: a multi-model approach By Mite Miteski; Magdalena Petrovska; Рртан Сулејмани
  27. The Effect of COVID-19 Transmission on Cryptocurrencies By Nesrine Dardouri; Abdelkader Aguir; Mounir Smida
  28. Capital flows to Latin America and the Caribbean: first half of 2023 By -
  29. Bitcoin Gold, Litecoin Silver:An Introduction to Cryptocurrency's Valuation and Trading Strategy By Haoyang Yu; Yutong Sun; Yulin Liu; Luyao Zhang
  30. The Network Gravity of Global Banking By Minetti, Raoul; Romanini, Giacomo; Ziv, Oren
  31. Central Bank of the Republic of Turkey Household Finance and Consumption Survey Methodology By Gianni Betti; Evren Ceritoglu; Muserref Kucukbayrak; Ozlem Sevinc
  32. To lend or not to lend: the Bank of Japan's ETF purchase program and securities lending By Mitsuru Katagiri; Junnosuke Shino; Koji Takahashi
  33. Measuring Financial Integration: More Data, More Countries, More Expectations By Menzie D. Chinn; Hiro Ito

  1. By: Bernd Hayo; Pierre-Guillaume Méon
    Abstract: An experiment using a representative survey of the German population shows that letting respondents report a number rather than asking them to choose from a list of predefined ranges lowers the response rate for both perceived past and expected inflation and decreases (increases) reported past (expected) inflation. Income, education, gender, objective and subjective knowledge about monetary policy, and political affiliation affect the effect’s size but not its sign. East and West German respondents who were 15 or older when the Berlin Wall fell have reactions different from those who were younger at that time, which supports the ‘impressionable years’ hypothesis based on different inflation experiences.
    Keywords: Inflation perception; inflation expectation; survey question design; Germany; household survey; impressionable years hypothesis
    JEL: E52 E58 Z13
    Date: 2023–08–01
  2. By: Alessandro Barbera; Dora Xia; Sonya Zhu
    Abstract: The term structure of inflation forecasts disagreement in the US can be summarized by two components: disagreement about the trend inflation, and disagreement about the cyclical inflation. While the former has identical impacts on forecasts disagreement across forecasting horizons, the latter has more muted impacts on forecasts disagreement at longer forecasting horizons. Only the cyclical inflation disagreement has a significant impact on monetary policy efficacy. High disagreement about the cyclical inflation undermines the transmission of monetary policy to both real economy and financial markets. Active communication from the Federal Reserve with the general public is a useful tool to reduce inflation disagreement, especially disagreement about the cyclical inflation.
    Keywords: inflation expectation; forecasts disagreement; monetary policy transmission
    JEL: E31 E37 E52
    Date: 2023–08
  3. By: Huber, Stefanie J.; Minina, Daria; Schmidt, Tobias
    Abstract: This paper documents a strong relationship between households' perceptions about inflation over the past 12 months and households' short- and long-term expectations about future inflation. This relationship is strong during periods of high-inflation but even stronger during low-inflation periods. We establish a causal relationship by implementing a randomized information provision experiment in a large and representative survey to generate an exogenous variation in inflation perceptions. Our results show that household perceptions about past inflation drive their expectations about future inflation rates. The strength of the pass-through from perceptions to expectations varies across socioeconomic groups. We identify two critical moderating factors for this heterogeneity; differences in individual uncertainty about future inflation and information acquisition. Further, we show that the large majority of households rely on their shopping experience when forming their perceptions about past inflation and pay particular attention to food and fuel prices. The shopping experience affects inflation expectations indirectly - through perceptions.
    Keywords: inflation dynamics, expectations, perceptions, uncertainty, household finance, monetary policy, randomized control trial
    JEL: D10 D84 D90 E31 E52 G40 G50
    Date: 2023
  4. By: Ekpeyong, Paul
    Abstract: This study investigates the dynamics of inflation volatility in Nigeria, with a specific focus on the Food Consumer Price Index (CPI), Core CPI, and Headline CPI. The analysis utilizes the Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models to capture time-varying volatility in the inflation rates. The study covers the period from January 1995 to December 2022, employing monthly data sourced from the Central Bank of Nigeria database. The results indicate that all three inflation series display time-varying volatility, signifying varying degrees of fluctuations and uncertainties in price movements over different periods. Furthermore, the presence of ARCH and GARCH effects in the residuals of the volatility models confirms the dynamic nature of inflation volatility. The study identifies significant structural breaks in the volatility of Food CPI during the years 2000, 2008, and 2018, emphasizing the importance of understanding the drivers of inflation volatility. External events and policy changes during these periods impacted food prices and led to shifts in volatility. Policy recommendations are made to address the challenges posed by inflation volatility in Nigeria. These include implementing price stability measures, enhancing food security, strengthening monetary policy, promoting data transparency and analysis, and undertaking fiscal reforms. The findings of this study contribute to a deeper understanding of inflation volatility in Nigeria and provide valuable insights for policymakers in formulating effective strategies to manage inflation and achieve macroeconomic stability. The study highlights the importance of monitoring inflation dynamics and implementing timely policies to ensure sustained economic growth and development in the country.
    Keywords: ARCH, Consumer price index, Headline, core, volatility, GARCH
    JEL: E6 E61 E63
    Date: 2023–07–28
  5. By: Ryoji Hiraguchi; Keiichiro Kobayashi
    Abstract: In this study, we construct a variant of the Lagos-Wright monetary model in which both buyers and sellers optimally decide whether to enter decentralized market by paying fixed entry costs. In the decentralized market, the sellers produce the intermediate inputs which are necessary to produce the general good traded in the centralized market. We show that the Friedman rule of setting nominal interest rate to zero may not be optimal. The optimal inflation rate is derived explicitly for specific functional forms. It is shown that the optimal inflation rate is lower for lower buyer entry costs, because the lower entry costs generate the congestion of buyers which must be compensated for by lower cost of money holdings. It is also shown that the optimal inflation is lower for higher seller entry costs. These results may explain why the secular decline in inflation has been observed in recent decades when the emergence and growth of Internet usage has lowered shopping costs for buyers.
    Date: 2023–08
  6. By: Finck, David; Hoffmann, Mathias; Hürtgen, Patrick
    Abstract: We estimate the effects of a negative asymmetric demand shock on the real exchange rate for the euro area vis-à-vis the United States, Canada, and Japan by state-dependent sign-restricted local projection methods. We find a real depreciation when interest rates are not at the ZLB, but also when they are. The exchange rate can accomodate considerable variations in output, confirming its shock-absorbing capacity before and during the ZLB episode. The stabilizing role of the exchange rate is accompanied by a significant expansion of the ECB's balance sheet at the ZLB, while it remained unaffected in the pre-ZLB period. Our empirical results can be reconciled with an open economy New Keynesian model extended with unconventional monetary policy measures when interest rates are at the ZLB.
    Keywords: Zero Lower Bound, Exchange Rate, Local Projections, State-dependent Effects, Unconventional Monetary Policy, Demand Shocks
    JEL: F31 E31 E37 C54
    Date: 2023
  7. By: Matteo Iacopini; Aubrey Poon; Luca Rossini; Dan Zhu
    Abstract: We propose an alternative method to construct a quantile dependence system for inflation and money growth. By considering all quantiles, we assess how perturbations in one variable's quantile lead to changes in the distribution of the other variable. We demonstrate the construction of this relationship through a system of linear quantile regressions. The proposed framework is exploited to examine the distributional effects of money growth on the distributions of inflation and its disaggregate measures in the United States and the Euro area. Our empirical analysis uncovers significant impacts of the upper quantile of the money growth distribution on the distribution of inflation and its disaggregate measures. Conversely, we find that the lower and median quantiles of the money growth distribution have a negligible influence on the distribution of inflation and its disaggregate measures.
    Date: 2023–08
  8. By: Frantisek Brazdik; Karel Musil; Stanislav Tvrz
    Abstract: In response to the 2008 financial crisis, when policy rates hit their lower bound, central banks adopted unconventional policies to meet their announced targets. These policies can either directly target interest rates or the quantities of assets. Taking into account the specific features of the Czech economy, this paper presents an extension of the CNB's core projection model for long-term assets and yield curve control measures. This extension demonstrates the ability of the CNB to consider and assess various unconventional policies within its analytical framework.
    Keywords: DSGE models, inflation targeting, quantitative easing, unconventional monetary policy, yield curve
    JEL: E32 E37 E43 E58
    Date: 2023–08
  9. By: Gabor, Daniela
    Abstract: Since (at least) Keynes we think of money as a time machine that links the irrevocable past to the uncertain future by credibly storing value. But time as shorthand for uncertainty downplays its role in the emergence of new forms of money. Instead, this paper theorizes monetary time as the set of practices through which the state and private finance order time on their balance sheets in the process of creating credible promises to pay at par. While time makes money, there is no unique temporal order that characterizes money/credit creation in capitalism. Rather, monetary time varies across different modes of organizing credit creation, in relationship banking vs market-based finance where credit is created via securities markets and financed through shadow money, promises to pay backed by collateral securities. The alchemy of (shadow) banking is the alchemy of monetary time, of money that can extinguish time without the state. To illustrate, the paper explores the money-time order perfected by New York broker-dealers in the call market that powered the American credit machine before the creation of the Federal Reserve in 1913. Brokers developed practices for daily re-pricing of collateral securities that rendered call (shadow) money credible stores of value. The day-based temporal order allowed brokers to pump credit into circulation via securities markets, liquidity into the payment system and moneyness into bank and paper money.
    Date: 2023–08–10
  10. By: Tobias Adrian; Rodney Garratt; Dong He; Tommaso Mancini-Griffoli
    Abstract: Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualised as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenisation of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenised money directly across borders.
    Keywords: cross-border payments
    JEL: E42 E51 E58 F31 G28 O32
    Date: 2023–07
  11. By: Dobrew, Michael; Gerke, Rafael; Kienzler, Daniel; Schwemmer, Alexander
    Abstract: We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their advantage over inflation targeting in mitigating a demand-driven recessions when interest rates are constrained by the ELB. For supply shocks, inflation t argeting o utperforms h istory-dependent r ules f or a s ufficiently high degree of BR. An exponential average inflation targeting rule, which features a variable degree of history dependence, performs remarkably well, independent of the degree of BR.
    Keywords: Bounded Rationality, Sticky Wages, Monetary Policy Strategies, Zero LowerBound
    JEL: E20 E24 E31 E32 E52
    Date: 2023
  12. By: Giovanni Melina; Stefania Villa
    Abstract: Shocks to capital utilization are introduced in a structural macroeconomic closed-economy model with financial frictions to capture disruptions on the ability of the capital stock to provide capital services used in production. Estimates for the Euro Area and the United States show that these shocks were among the most important drivers of the output contraction during the Global Financial Crisis and the COVID-19 Crisis, while financial shocks were more relevant during the Global Financial Crisis. Thanks to the timely and strong intervention of the European Central Bank and the U.S. Federal Reserve, monetary policy shocks exerted a sizable positive contribution to output and inflation during the COVID-19 Crisis.
    Keywords: Covid-19, Global Financial Crisis, Great Lockdown, monetary policy, capital utilization
    JEL: E40 E50 E60
    Date: 2023
  13. By: Ricardo Nunes (University of Surrey, CIMS, and CfM; Centre for International Macroeconomic Studies (CIMS); Centre for Macroeconomics (CFM)); Ali Ozdagli (Federal Reserve Bank of Dallas); Jenny Tang (Federal Reserve Bank of Boston)
    Abstract: Interest rate surprises around FOMC announcements contain both pure policy shocks and interest rate movements driven by central bank information about the economy. By analyzing interest rate changes on days of macroeconomic data releases, the impact of the central bank’s information shocks can be identified and separated from the pure policy shocks. Results show that there is a significant central bank information component in the widely used policy rate surprise measure. Removing this component reveals that the contractionary effects of a positive pure policy shock are more pronounced relative to those estimated using the entire policy rate surprise. A positive information shock, on the other hand, is expansionary.
    Keywords: Monetary policy, central bank information, high frequency identification, proxy structural VAR, external instruments
    JEL: C36 D83 E52 E58
    Date: 2023–07
  14. By: Guido Ascari; Paolo Bonomolo; Qazi Haque
    Abstract: In U.S. data, inflation and output are negatively related in the long run. A Bayesian VAR with stochastic trends generalized to be piecewise linear provides robust reduced-form evidence in favor of a threshold level of trend inflation of around 4%, below which potential output is independent of trend inflation, and above which, instead, potential output is negatively affected by trend inflation. Moreover, this negative relationship is quite substantial: above the threshold every percentage point increase in trend inflation is related to about 1% decrease in potential output per year. A New Keynesian model generalized to admit time-varying trend inflation and estimated via particle filtering provides theoretical foundations to this reduced-form evidence. The structural long-run Phillips Curve implied by the estimated New Keynesian model is not statistically different from the one implied by the reduced-form piecewise linear BVAR model.
    Keywords: Long-Run Phillips Curve; Inflation; Bayesian VAR; DSGE; Particle Filter
    JEL: C32 C51 E30 E31 E52
    Date: 2023–08
  15. By: Alfredo García-Hiernaux (DANAE and ICAE); María T. González-Pérez (Banco de España); David E. Guerrero (CUNEF)
    Abstract: This paper proposes a statistical model and a conceptual framework to estimate inflation volatility assuming rational inattention, where the decay in the level of attention reflects the arrival of news in the market. We estimate trend inflation and the conditional inflation volatility for Germany, Spain, the euro area and the United States using monthly data from January 2002 to March 2022 and test whether inflation was equal to or below 2% in this period in these regions. We decompose inflation volatility into positive and negative surprise components and characterise different inflation volatility scenarios during the Great Financial Crisis, the Sovereign Debt Crisis, and the post-COVID period. Our volatility measure outperforms the GARCH(1, 1) model and the rolling standard deviation in one-step ahead volatility forecasts both in-sample and out-of-sample. The methodology proposed in this article is appropriate for estimating the conditional volatility of macro-financial variables. We recommend the inclusion of this measure in inflation dynamics monitoring and forecasting exercises.
    Keywords: inflation, inflation trend, inflation volatility, rational inattention, positive and negative surprises.
    JEL: C22 C32 E3 E4 E5
    Date: 2023–06
  16. By: Fudulache, Adina-Elena; Goetz, Martin R.
    Abstract: We exploit variation in the share of seniors across European banking markets to construct an IV for banks' dependence on long-term deposit funding and find that greater long-term deposit funding reduces demand for long-term central bank funding via targeted longer-term refinancing operations (TLTRO). This effect is stronger when banks face less competition. Long-term central bank funding further motivates banks to reduce their dependence on debt issuance and increase their money markets borrowing. Our findings are consistent with the idea that banks' access to stable funding can crowd out their incentive to apply for (long-term) central bank funding.
    Keywords: Monetary policy, bank funding, deposit financing
    JEL: E50 G20 G28
    Date: 2023
  17. By: Q. Farooq Akram; Jon H. Findreng; Lyndsie Smith
    Abstract: We analyse the behaviour of the Norwegian unsecured overnight interbank market in response to heightened uncertainty and the central bank's liquidity support measures following the Covid-19 pandemic. The liquidity measures enabled banks to fulfil their liquidity needs primarily through participation in extraordinary liquidity auctions. The distribution of central bank reserves across banks did not change due to these measures, but interbank trading fell sharply. Ample liquidity support through the auctions and low interbank trading contributed to low and overly stable overnight rates. Actually, throughout our sample period from 2017 to 2021, the overnight rates remained largely unaffected by fluctuations in uncertainty and overall liquidity conditions.
    Keywords: The Covid-19 pandemic, distribution of central bank reserves, overnight interbank market, liquidity policy.
    JEL: G21 E42 E47 E58
    Date: 2023–06–16
  18. By: Hakan Kara (Bilkent University, Department of Economics, Ankara, Turkiye); Cagri Sarikaya (Akbank Gen. Müd., Sabancı Center, Istanbul, Turkiye)
    Abstract: This paper identifies the cyclical drivers of the current account balance (CAB) in Türkiye and assesses the relevant macro policy implications. We employ the notion of “underlying current account”, which corrects for cyclical factors such as global and domestic growth, terms of trade, as well as other exogenous factors including data revisions and idiosyncratic shocks to balance on services. We show that excessive fluctuations in the headline external deficit in recent years can be largely attributed to a combination of unusually large external shocks such as the pandemic and the war, in conjunction with a record-low domestic real interest rates. Special emphasis is put on the role of gold trade and its relation to domestic macro policies. Accounting for the impact of all factors, we estimate that the underlying CAB has shrunk from -6.4% in 2010 to a range of -0.9% to -1.6% in 2023, suggesting a substantial improvement in the external balance during the past decade. However, the underlying balance has significantly deteriorated after 2022, as the jump in inflation coupled with the quasi-fixed exchange rate regime implemented through active use of central bank reserves quickly eroded the competitiveness gains of past years. Besides, as the domestic agents have increased their demand for physical goods/assets to hedge against high inflation under ultra-low real rates, the upward shift in the demand for gold and other imported goods started to feed through the structural component of the CAB. These observations imply that, it may be challenging to lock in the recent gains in the external balance unless the authorities eventually deliver the necessary cyclical adjustment and restore the credibility of the macroeconomic policy framework by re-establishing a nominal anchor.
    Keywords: Underlying current account, Turkish economy.
    JEL: E32 E65 F32
    Date: 2023–08
  19. By: Hervé Le Bihan (Banque de France); Danilo Leiva-León (European Central Bank); Matías Pacce (Banco de España)
    Abstract: We propose a new measure of underlying inflation that provides real-time information on asymmetric risks in the outlook for inflation. The asymmetries are generated by nonlinearities induced by economic activity. The new indicator is based on a multivariate regime-switching framework estimated using disaggregated sub-components of euro area HICP and has several additional advantages. First, it is able to swiftly infer abrupt changes in underlying inflation. Second, it helps track turning points in underlying inflation on a timely basis. Third, the proposed indicator also performs satisfactorily vis-à-vis several criteria relevant to inflation monitoring.
    Keywords: underlying inflation, asymmetric risks, regime-switching, Bayesian methods
    JEL: E17 E31 C11 C22 C24
    Date: 2023–07
  20. By: Jean N. Lee (World Bank); Jonathan Morduch (Robert F. Wagner Graduate School of Public Service, New York University); Saravana Ravindran (Lee Kuan Yew School of Public Policy, National University of Singapore); Abu S. Shonchoy (Department of Economics, Florida International University)
    Abstract: Mobile money has spread globally, introducing new payment technologies and reducing dependence on cash. Using mobile money can affect spending decisions and how people perceive money itself. Behavioral household finance shows that people are often more willing to spend when using less tangible forms of money like debit and credit cards than when spending in cash. We test whether a similar positive “payment effect†holds for mobile money. In contrast, we find a consistently lower willingness to spend in Bangladesh, where mobile money is now widespread. We draw on surveys embedded within an experiment that allows us to control for the relationships between senders and receivers of mobile money. The findings are consistent with mobile money being earmarked or labeled for particular uses. For rural households, who typically receive remittances from relatives working in the city, for example, mobile money often comes with expectations of how the money should be spent. Spending with cash, in contrast, tends to be more fungible. In urban areas, where the sample is largely comprised of remittance-senders, payment effects are substantially smaller.
    Keywords: payment effect, digital finance, willingness to pay, social meaning of money, earmarks
    JEL: O15 G41 G50 D91 D14
    Date: 2023–08
  21. By: Bartzsch, Nikolaus; Brandi, Marco; de Pastor, Raymond; Devigne, Lucas; Maddaloni, Gianluca; Posada Restrepo, Diana; Sene, Gabriele
    Abstract: As part of the Eurosystem's annual banknote production planning, the national central banks draw up forecasts estimating the volumes of national-issued banknotes in circulation for the three years ahead. As at the end of 2021, more than 80 per cent of euro banknotes in circulation (cumulated net issuance) had been issued by the national central banks of France, Germany, Italy and Spain ('4 NCBs'). To date, the 4 NCBs have been using ARIMAX models to forecast the banknotes issued nationally in circulation by denomination ('benchmark models'). This paper presents the structural time series models developed by the 4 NCBs as an additional forecasting tool. The forecast accuracy measures used in this study show that the structural time series models outperform the benchmark models currently in use at each of the 4 NCBs for most of the denominations. However, it should be borne in mind that the statistical informative value of this comparison is limited by the fact the projection period is only twelve months.
    Keywords: euro, demand for banknotes, forecast of banknotes in circulation, structural time series models, ARIMA models, intervention variables
    JEL: C22 E41 E47 E51
    Date: 2023
  22. By: André Cartapanis (Institut d'Études Politiques [IEP] - Aix-en-Provence); Marie-Hélène Gagnon (ULaval - Université Laval [Québec]); Céline Gimet (Institut d'Études Politiques [IEP] - Aix-en-Provence, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In current economic conditions, financial stability is paramount to the proper functioning of open markets. Financial stability must be balanced with financial flexibility. This relationship is deeply affected by financial fragmentation. This is why Central Banks have focused on these issues in the last decade in particular. Both financial stability and financial fragmentation have unintended consequences on optimal currency areas. In this paper, we survey the original optimal currency areas literature and relate it with the new literature on financial stability and financial fragmentation. We highlight the importance of new macroprudential policies both at the national and regional levels.
    Date: 2023
  23. By: Teona Shugliashvili
    Abstract: Using the big data of news texts and a novel, news extended exchange rate model, we investigate the impact of media news on major exchange rates. To present the impact of the U.S. Dollar related news on EUR/USD and GBP/USD, we first use a machine learning model and detect which news topics relate to U.S. Dollar. Next, we calculate the attention to the U.S. Dollar related news topics over time. Eventually, we visualize how Exchange rates react to shocks in the attention to the U.S. Dollar related news topics. The impulse response functions of U.S. Dollar bilateral rates show that exchange rates respond to the U.S. Dollar related news and to the economic uncertainty news shocks with statistical significance in several periods after the shock. Forecast error decomposition documents that 25-27% of exchange rate variation in the long run comes from the news. The results reveal, that news add valuable information to macroeconomic fundamentals for identifying exchange rates, and exchange rates are better identified when both, macroeconomic and news information are used together. These findings are important for exchange rate modeling.
    Keywords: Foreign Exchange, News, Taylor rules, Text mining, LDA, Natural Language Processing (NLP)
    JEL: C55 D80 D84 F31 G14
    Date: 2023–06–02
  24. By: Murau, Steffen
    Abstract: This paper traces the transformation of the monetary architecture and concomitant sovereign debt issuance practices in Prussia and the German Empire from 1740 to 1914 in order to reflect on contemporary ideas regarding the appropriate relation between states' treasuries, central banks, and the private banking system in matters of sovereign debt issuance. It discusses three institutions as "protagonists" - the Königlich Preußische Bank, the Seehandlung, and the Disconto-Gesellschaft - and follows them through four phases of Prussian and German history: feudal Prussia from Friedrich II to the defeat against Napoleon (1740-1806); from the Stein-Hardenberg reforms to the March Revolution (1807-1848); post-revolutionary Prussia, including the rise of Bismarck, his three wars, and the foundation of the German Empire (1849-1871); and Prussia in the German Empire during the first era of globalization (1871-1914). Adopting the Monetary Architecture framework as a conceptual lens, the analysis yields three main findings. First, off-balance-sheet fiscal agencies (OBFAs) have played a key role in the issuance and management of sovereign debt, even before central banks and treasuries in the modern sense had formed. This is highlighted in the institutional role of the Seehandlung, which kick-started Prussian sovereign debt issuance during the Napoleonic Wars. Second, central banking institutions have historically shifted within the public-private spectrum. The state-owned Königlich Preußische Bank became more functional and accountable after it was converted into the hybrid Preußische Bank. When it was transformed into the Reichsbank in 1875, a fully private ownership structure was chosen. Third, the economic liberalization after 1848 and the increased need to harness private funding for war finance led to the emergence of syndicated sovereign bond issuance. The Disconto-Gesellschaft, which played a leading role in the Prussia Consortium and the Imperial Bond Consortium, was at the forefront of establishing a new relationship between private finance and the state.
    Keywords: Fiscal Policy, Debt, Institutions, History
    Date: 2023
  25. By: Simplice A. Asongu (Yaoundé, Cameroon); Peter Agyemang-Mintah (Zayed University, Abu Dhabi, UAE); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Yolande E. Ngoungou (Yaoundé, Cameroon)
    Abstract: The study assesses the role of mobile money innovations on income inequality and gender inclusion in 42 Sub-Saharan African countries for the period 1980 to 2019 using interactive quantile regressions. The following findings are established. First, income inequality unconditionally reduces the involvement of women in business and politics. Second, mobile money innovations interact with income inequality to have a positive impact on women in business and politics. Third, net effects from the role of mobile money innovations in income inequality for gender inclusion are consistently negative. Fourth, given that the positive conditional or interactive effects and negative net effects are consistent across the conditional distribution of gender inclusion, thresholds at which mobile money innovations can completely dampen the negative effect of income inequality on gender inclusion are provided. Among others, policy makers should work towards improving conditions for mobile money innovations. They should also be aware that reducing both income inequality and enhancing mobile money innovations simultaneously leads to more inclusive outcomes in terms of gender inclusion.
    Keywords: Financial inclusion; inequality; mobile phones; sub-Saharan Africa; women
    JEL: G20 O40 I10 I20 I32
    Date: 2023–01
  26. By: Mite Miteski (National Bank of the Republic of North Macedonia); Magdalena Petrovska (National Bank of the Republic of North Macedonia); Рртан Сулејмани (National Bank of the Republic of North Macedonia)
    Abstract: This paper identifies the natural interest rate for the Macedonian economy using quarterly data for 2001Q4-2019Q3. To this end, the estimation is made by using different types of models, such as the Holston, Laubach, and Williams model and the full-fledged country-specific structural MAKPAM model. The empirical results show that the natural rate of interest in the Macedonian economy has declined over time, which is similar to the findings for other countries. The decomposition of the natural rate suggests that the main driver for the decline is the slowdown of the Macedonian potential GDP growth in the period after the global economic crisis, although there are signs of its recovery at the end of the sample period. In addition, the results indicate that the monetary policy conditions in the Macedonian economy have been broadly accommodative from 2011Q4 onwards. The substantive conclusions are unchanged across the multiple models used in this study.
    Keywords: Natural interest rate, interest rate gap, Holston, Laubach, and Williams model, MAKPAM Model
    JEL: C32 E43 E52 O40
    Date: 2023
  27. By: Nesrine Dardouri; Abdelkader Aguir (ESPI - Ecole Supérieure des Professions Immobilières); Mounir Smida (Université de Sousse)
    Abstract: In recent years, Bitcoin and other cryptocurrencies like Ethereum and Dogecoin have emerged as important asset classes in general, and diversification and hedging instruments in particular. The recent COVID-19 pandemic has provided the chance to examine and assess cryptocurrencies' behavior during extremely stressful times. The methodology of this study is based on an estimate using the ARDL model from 22 January 2020 to 12 March 2021, allowing us to analyze the long-term and short-term relationship between cryptocurrencies and COVID-19. Our results demonstrate that there is cointegration between the chosen cryptocurrencies in the market and COVID-19. The results indicate that Bitcoin, ETH, and DOGE prices were affected by COVID-19, which means that the pandemic seriously affected the three cryptocurrency prices.
    Keywords: COVID-19, coronavirus, cryptocurrency, price volatility, liquidity
    Date: 2023–07–27
  28. By: -
    Abstract: Latin American and Caribbean bond activity in international markets recovered strongly towards the end of the first half of 2023, with a total of US$ 50 billion placed in the period. This figure was 9% higher than in the year-earlier period and 158% higher than in the second half of 2022. Decelerating inflation and currency appreciation supported the upturn in bond activity, as did the pause in increases in the benchmark interest rate decided by the United States Federal Reserve at its meeting on 13 and 14 June following 10 consecutive hikes. There was a flurry of new bond issuances in the last two weeks of June that continued in July. The region’s issuance of green, social, sustainability and sustainability-linked bonds in international markets followed the broader market trend, with 60% of such bonds issued in May and June. These bonds totalled US$ 16.6 billion in the first half of 2023, up 14% from the first half of 2022 and 180% from the second half, representing a record 33.5% of the total amount issued in international markets in the period. Capital Flows to Latin America and the Caribbean: first half of 2023 presents and analyses the main trends and developments concerning capital flows to Latin America and the Caribbean in the first six months of the year. This report is published by ECLAC three times a year and provides an overview of the region’s new international bond issuances, bond spreads and credit ratings.
    Date: 2023–08–09
  29. By: Haoyang Yu; Yutong Sun; Yulin Liu; Luyao Zhang
    Abstract: Historically, gold and silver have played distinct roles in traditional monetary systems. While gold has primarily been revered as a superior store of value, prompting individuals to hoard it, silver has commonly been used as a medium of exchange. As the financial world evolves, the emergence of cryptocurrencies has introduced a new paradigm of value and exchange. However, the store-of-value characteristic of these digital assets remains largely uncharted. Charlie Lee, the founder of Litecoin, once likened Bitcoin to gold and Litecoin to silver. To validate this analogy, our study employs several metrics, including unspent transaction outputs (UTXO), spent transaction outputs (STXO), Weighted Average Lifespan (WAL), CoinDaysDestroyed (CDD), and public on-chain transaction data. Furthermore, we've devised trading strategies centered around the Price-to-Utility (PU) ratio, offering a fresh perspective on crypto-asset valuation beyond traditional utilities. Our back-testing results not only display trading indicators for both Bitcoin and Litecoin but also substantiate Lee's metaphor, underscoring Bitcoin's superior store-of-value proposition relative to Litecoin. We anticipate that our findings will drive further exploration into the valuation of crypto assets. For enhanced transparency and to promote future research, we've made our datasets available on Harvard Dataverse and shared our Python code on GitHub as open source.
    Date: 2023–07
  30. By: Minetti, Raoul (Michigan State University, Department of Economics); Romanini, Giacomo (Bank of Italy); Ziv, Oren (Michigan State University, Department of Economics)
    Abstract: A substantial fraction of international banking is intermediated through banking hubs and complex multi-national routing. These flows are ignored or unaccounted for, both theoretically and empirically. We develop an N-country DSGE model of lending where banks choose the path of lending through a network of partner institutions in multiple countries. Banking hub countries arise endogenously as central nodes in the intermediation network. The model provides a framework to rationalize observable international statistics with theoretical models of banking gravity. It generates a set of bilateral locational flow of funds that conceptually matches aggregate (BIS LBS) statistics, as distinct from the ultimate demand and supply of lending. Using a series of calibrations for both node and edge shocks, we show that accounting for the network is crucial for understanding the propagation of shocks and the impact of banking consolidation on aggregate fluctuations. The analysis reveals that neglecting the multinational banking network can lead to biased conclusions about the aggregate effects of banking unions.
    Keywords: Heterogeneous Banks; Gravity; Intermediation Network; Contagion
    JEL: F40 G20
    Date: 2023–08–17
  31. By: Gianni Betti; Evren Ceritoglu; Muserref Kucukbayrak; Ozlem Sevinc
    Abstract: This article describes the methodologies used in the first wave of the Central Bank of the Republic of Turkey – Household Finance and Consumption Survey (CBRT-HFCS). Particularly, we summarize design and implementation of the CBRT-HFCS in terms of questionnaire, sampling, collection of data and fieldwork, non-response, weighting and construction of replicate weights. The CBRT-HFCS provides data on assets, liabilities, income and credit constraints of Turkish households, which is designed to be compatible with the European Central Bank – Household Finance and Consumption Survey (ECB-HFCS). This survey uniquely ensures a comparable data set for the Turkish households with 19 Euro area countries as well as Croatia, Poland and Hungary participating in the ECB-HFCS and fills a significant data gap in Turkey. The CBRT-HFCS also oversamples wealthy households based on unit house prices at the neighborhood level. Oversampling is a common approach applied in many wealth surveys, enabling to better capture balance sheet of the top tail of wealth distribution, which is new to household surveys conducted by the Turkish Statistical Institute (TURKSTAT).
    Keywords: Sampling design, Oversampling, Wealth distribution
    JEL: C83 D31
    Date: 2022
  32. By: Mitsuru Katagiri; Junnosuke Shino; Koji Takahashi
    Abstract: This study investigates the effects of the Bank of Japan's (BOJ) exchange-traded fund (ETF) purchase program on stock returns, particularly focusing on the role of the stock lending market. Using firm-level panel data, we find that the BOJ's purchases raised stock returns more for those stocks with limited availability in the stock lending market. Nonetheless, over the longer term, the BOJ's accumulated purchases lowered lending fees and weakened the effects of their purchases on stock returns. This result suggests that ETF managers supply stocks that constitute ETFs held by the BOJ to the stock lending market, which weakens the policy effects of the program.
    Keywords: large-scale asset purchase (LSAP), ETF purchase program, stock lending market, Bank of Japan
    JEL: E58 G12 G14
    Date: 2023–08
  33. By: Menzie D. Chinn; Hiro Ito
    Abstract: We assess market mediated financial integration over the last fifty years. We first systematically lay out several definitions of financial integration, and then review the evidence regarding whether covered interest parity, uncovered interest parity, and real interest parity hold across industrial and non-industrial countries. Finally we examine what the determinants of real interest differentials are.
    JEL: F30 F40
    Date: 2023–07

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