nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒09‒11
33 papers chosen by
Bernd Hayo, Philipps-Universität Marburg

  1. Information and the Formation of Inflation Expectations by Firms: Evidence from a Survey of Israeli Firms By Gorodnichenko, Yuriy; Melnick, Rafi; Kutai, Ari
  2. Inflation stabilization and normal utilization By Michl, Thomas R.
  3. Digitalization: Implications for Monetary Policy By Vivian Chu; Tatjana Dahlhaus; Christopher Hajzler; Pierre-Yves Yanni
  4. Optimal policy under dollar pricing By Egorov, Konstantin; Mukhin, Dmitry
  5. Deposit market concentration and monetary transmission: evidence from the euro area By Stephen Kho
  6. On the Unimportance of Commitment for Monetary Policy By Juan Paez-Farrell
  7. Where do they care? : The ECB in the media and inflation expectations By Vegard Høghaug Larsen; Nicolò Maffei-Faccioli; Laura Pagenhardt
  9. Quantitative Easing and Safe Asset Scarcity: Evidence from International Bond Safety Premia By Jens H. E. Christensen; Nikola Mirkov; Xin Zhang
  10. Consumers’ Perspectives on the Recent Movements in Inflation By Felix Aidala; Olivier Armantier; Fatima Boumahdi; Gizem Koşar; Devon Lall; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw
  11. Firm heterogeneity, capital misallocation and optimal monetary policy By Beatriz González; Galo Nuño; Dominik Thaler; Silvia Albrizio
  12. The Investment Channel of Monetary Policy : Evidence from Norway By Jin Cao; Torje Hegna; Martin B. Holm; Ragnar Juelsrud; Tobias König; Mikkel Riiser
  13. The Federal Reserve’s Two Key Rates: Similar but Not the Same? By Gara Afonso; Marco Cipriani; Gabriele La Spada; Peter Prastakos
  14. Modern Monetary Theory: Revising Money Demand and Supply from Umer Chapra's Perspective By Umam Khoirul; Muhammad Atha Mahdi; Alfarid Fedro
  15. Integrated Monetary and Financial Policies for Small Open Economies By Mr. Suman S Basu; Ms. Emine Boz; Ms. Gita Gopinath; Mr. Francisco Roch; Ms. Filiz D Unsal
  16. The impact of financial shocks on the forecast distribution of output and inflation By Mario Forni; Luca Gambetti; Nicolò Maffei-Faccioli; Luca Sala
  17. Know your (holding) limits: CBDC, financial stability and central bank reliance By Meller, Barbara; Soons, Oscar
  18. Passive Quantitative Easing: Bond Supply Effects through a Halt to Debt Issuance By Jens H. E. Christensen; Simon Thinggaard Hetland
  19. Accessing U.S. Dollar Swap Lines: Macroeconomic Implications for a Small Open Economy By Dominguez, Begona; Gomis-Porqueras, Pedro
  20. Theoretical analysis of the evolution of monetary policy strategies adopted by Bank Al-Maghrib By Mohamed Er-Rahmany; Fouad Ben Elhaj
  21. Expected Macroeconomic Effects of Issuing a Retail CBDC By Constanza Martínez-Ventura; Julián A. Parra-Polania; Tatiana Mora-Arbeláez; Angélica Lizarazo-Cuéllar
  22. Real exchange rate and international reserves in the era of financial integration By Sy-Hoa Ho; Luu Duc Toan Huynh; Jamel Saadaoui; Gazi Uddin; Joshua Azienman
  23. Narratives on the causes of inflation in Germany: First results of a pilot study By Demgensky, Lisa; Fritsche, Ulrich
  24. A HANK² Model of Monetary Unions By Christian Bayer; Alexander Kriwoluzky; Gernot J. Müller; Fabian Seyrich
  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. The role of mobile money innovations in the effect of inequality on poverty and severity of poverty in Sub-Saharan Africa By Simplice A. Asongu; Sara le Roux
  27. The Geography of Capital Allocation in the Euro Area By Beck, Roland; Coppola, Antonio; Lewis, Angus; Maggiori, Matteo; Schmitz, Martin; Schreger, Jesse
  28. Cash for Transactions or Store-of-Value? A comparative study on Sweden and peer countries By Claussen, Carl Andreas; Segendorff, Björn; Seitz, Franz
  29. Hot money inflows and bank risk-taking: Germany from the 1920s to the Great Depression By Postel-Vinay, Natacha; Collet, Stephanie
  30. Bitcoin Gold, Litecoin Silver: An Introduction to Cryptocurrency’s Valuation and Trading Strategy By Yu, Haoyang; Sun, Yutong; Liu, Yulin; Zhang, Luyao
  31. Inflation, wages and equality: cross-disciplinary conversations By Edwards, Paul; Baden-Fuller, Charles; Pissarides, Christopher; Rubery, Jill; Crouch, Colin; Taylor-Gooby, Peter
  32. What Makes Cryptocurrencies Different? By Anders Brownworth; Jon Durfee; Michael Junho Lee; Antoine Martin
  33. Generic and Universal Local Cryptocurrency: LCoin By Frédéric A Hayek; Pascal Lafourcade; Ariane Tichit

  1. By: Gorodnichenko, Yuriy (University of California, Berkeley); Melnick, Rafi (Reichman University); Kutai, Ari (Tel Aviv University)
    Abstract: This study analyzes how firms form their inflation expectations during a regime change in monetary policy and a transition to a low-inflation environment. Using the Bank of Israel survey of firms, we document the basic properties of firms' inflation expectations and examine how Israeli firms update their inflation expectations after receiving new information about inflation or monetary policy. We find that even after successful de-dollarization and disinflation a positive inflation surprise leads to a sizable upward adjustment in inflation expectations for the next year and quarter. A surprise hike in the monetary interest rate leads to a downward adjustment in inflation expectations.
    Keywords: monetary policy, surveys, firms, inflation expectations
    JEL: D22 E31 E52
    Date: 2023–07
  2. By: Michl, Thomas R. (Department of Economics, Colgate University)
    Abstract: This paper presents a model of inflation and distribution that examines the relationship between the employment of labor and the utilization of capital. It features a structural difference between the wage Phillips curve and the price Phillips curve that gives rise to persistent changes in the real wage whenever the inflation-neutral level of activity fails to utilize the existing capital stock at its normal level. Assuming an inflation-targeting central bank that is obliged to run the system around its inflation-neutral level, these changes will reduce the gap between the inflation-neutral level and normal utilization by moving the system along a stable wage curve. In the end this implies that the inflation-neutral level of employment and full or normal utilization of capital will tendentially coincide, lending some support to the Duménil-Lévy thesis that monetary policy makes normal utilization a long-run center of gravity.
    JEL: E11 E12 E24 E31 E52
    Date: 2023–08–23
  3. By: Vivian Chu; Tatjana Dahlhaus; Christopher Hajzler; Pierre-Yves Yanni
    Abstract: We explore the implications of digitalization for monetary policy, both in terms of how monetary policy affects the economy and in terms of data analysis and communication with the public.
    Keywords: Digitalization; Inflation and prices; Market structure and pricing; Monetary policy; Monetary policy transmission; Monetary policy communications
    JEL: E E32 E52 C4 C8
    Date: 2023–08
  4. By: Egorov, Konstantin; Mukhin, Dmitry
    Abstract: Empirical evidence shows that most international prices are sticky in dollars. This paper studies the policy implications of this fact in the context of an open economy model with general preferences, technologies, asset markets, nominal rigidities, and a rich set of shocks. We show that although monetary policy is less efficient and cannot implement the flexible-price allocation, inflation targeting and a floating exchange rate remain robustly optimal in non-US economies. The capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. International cooperation benefits other economies, but is not in the self-interest of the United States.
    JEL: E31 E52 F14 F31 F41
    Date: 2023–07–01
  5. By: Stephen Kho
    Abstract: I study the transmission of monetary policy to deposit rates in the euro area with a focus on the role of banking sector concentration. Using a local projections framework with 2003-2022 country-level and bank-level data for thirteen euro area member states, I find that deposit rates respond symmetrically to unexpected changes in monetary policy. However, more concentrated domestic banking sectors do pass on unexpected monetary tightening (easing) more slowly (quickly) than less concentrated banking sectors, which contributes to a temporary divergence of deposit rates across the euro area. These results suggest that heterogeneity in the degree of banking sector concentration matters for the transmission of monetary policy, which in turn may affect banking sector profitability as well as the macro-economic response to monetary policy.
    Keywords: Monetary transmission; deposit rates; market concentration
    JEL: E43 E52 D40
    Date: 2023–08
  6. By: Juan Paez-Farrell (Department of Economics, University of Sheffield, Sheffield S1 4DT, UK)
    Abstract: In a New Keynesian model where the trade-off between stabilising the aggregate inflation rate and the output gap arises from sectoral asymmetries, the gains from commitment are either zero or negligible. Thus, to the extent that economic fluctu- ations are caused by sectoral shocks, policies designed to overcome the stabilisation bias are aiming to correct an unimportant problem.
    Keywords: optimal monetary policy, stabilization bias, discretion, commitment, inflation target
    JEL: E52 E58
    Date: 2023–08
  7. 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.
    Keywords: ECB, Inflation expectations, News coverage, Textual analysis.
    JEL: D80 E32 E66
    Date: 2023–04–26
  8. By: triyawan, andi; latifah, hafizah
    Abstract: Sharia monetary instruments incorporate monetary control based on sharia principles to assist Bank Indonesia in developing and implementing monetary policy. That’s way, it is expected that sharia monetary policy will create economic stability in Indonesia, one of which is rupiah value stability or inflation control. The goal of this research was to look at the impact of sharia monetary instruments, specifically Sharia Bank Indonesia Certificates (SBIC), Bank Indonesia Sharia Deposit Facilities (BISDF), and Sharia Interbank Call Money (SICM), on Indonesian inflation from 2011 to 2020. This is a quantitative study that explains the relation between the independent and dependent variables. The inflation percentage is the dependent variable, whereas the number of SBIC, BISDF, and SICM is the independent variable. This study used time series data from 2011-2020. The Vector Autoregressive (VAR) or Vector Error Correction Model (VECM) method is used in the analysis. The VECM estimation results reveal that SBIC has no effect on inflation in the long or short term. In the meantime, the BISDF has a large favorable influence on inflation, but only in the short term. Finally, in the long term, SICM has a negative influence on inflation, although in the short term, SICM has no effect on inflation. Furthermore, according to the Granger causality test, only the SBIC and BISDF variables demonstrate bidirectional causality. Meanwhile, unidirectional causality exists between the BISDF and inflation, SBIC and SICM, so do BISDF and SICM.
    Date: 2023–07–24
  9. By: Jens H. E. Christensen; Nikola Mirkov; Xin Zhang
    Abstract: Through large-scale asset purchases, widely known as quantitative easing (QE), central banks around the world have reduced the available supply of safe assets. We examine the effects of the European Central Bank’s asset purchases in the 2015-2021 period on an international panel of bond safety premia from four highly rated countries: Denmark, Germany, Sweden, and Switzerland. We find statistically significant negative effects for all four countries. This points to a novel and important international spillover channel of QE programs to bond safety premia that operates via changes in the perceived relative scarcity of safe assets across international bond markets.
    Keywords: term structures; convenience yields; Conventional and unconventional US monetary policy; European Central Bank (ECB)
    JEL: E43 E47 G12 G13
    Date: 2023–08–15
  10. By: Felix Aidala; Olivier Armantier; Fatima Boumahdi; Gizem Koşar; Devon Lall; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw
    Abstract: Inflation in the U.S. has experienced unusually large movements in the last few years, starting with a steep rise between the spring of 2021 and June 2022, followed by a relatively rapid decline over the past twelve months. This marks a stark departure from an extended period of low and stable inflation. Economists and policymakers have expressed differing views about which factors contributed to these large movements (as reported in the media here, here, here, and here), leading to fierce debates in policy circles, academic journals, and the press. We know little, however, about the consumer’s perspective on what caused these sudden movements in inflation. In this post, we explore this question using a special module of the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) in which consumers were asked what they think contributed to the recent movements in inflation. We find that consumers think supply-side issues were the most important factor behind the 2021-22 inflation surge, while they regard Federal Reserve policies as the most important factor behind the recent and expected future decline in inflation.
    Keywords: expectations; inflation; Fed policy; supply chain; pandemic; monetary policy
    JEL: E52
    Date: 2023–08–17
  11. By: Beatriz González (Banco de España); Galo Nuño (Banco de España); Dominik Thaler (European central bank); Silvia Albrizio (International monetary fund)
    Abstract: We analyze monetary policy in a New Keynesian model with heterogeneous firms and financial frictions. Firms differ in their productivity and net worth and face collateral constraints that cause capital misallocation. TFP endogenously depends on the time-varying distribution of firms. Although a reduction in real rates increases misallocation in partial equilibrium, general-equilibrium effects overturn this result: a monetary expansion increases the investment of high-productivity firms relatively more than that of low-productivity ones, crowding out the latter and increasing TFP. We provide empirical evidence based on Spanish granular data supporting this mechanism. This has important implications for optimal monetary policy. We show how a central bank without pre-commitments engineers an unexpected monetary expansion to increase TFP in the medium run. In the event of a cost-push shock, the central bank leans with the wind to increase demand and reduce misallocation.
    Keywords: Monetary policy, firm heterogeneity, financial frictions, misallocation
    JEL: E12 E22 E43 E52 L11
    Date: 2021–12
  12. By: Jin Cao; Torje Hegna; Martin B. Holm; Ragnar Juelsrud; Tobias König; Mikkel Riiser
    Abstract: We investigate the transmission of monetary policy to investment using Norwegian administrative data. We have two main findings. First, financially constrained firms are more responsive to monetary policy, but the effect is modest; suggesting that firm heterogeneity plays a minor role in monetary transmission. Second, we disentangle the investment channel of monetary policy into direct effects from interest rate changes and indirect general equilibrium effects. We find that the investment channel of monetary policy is due almost exclusively to direct effects. The two results imply that a representative firm framework with investment adjustment frictions in most cases provides a sufficiently detailed description of the investment channel of monetary policy.
    Keywords: Monetary policy, Investment.
    JEL: E22 E52 D22 G31
    Date: 2023–05
  13. By: Gara Afonso; Marco Cipriani; Gabriele La Spada; Peter Prastakos
    Abstract: Since the global financial crisis, the Federal Reserve has relied on two main rates to implement monetary policy—the rate paid on reserve balances (IORB rate) and the rate offered at the overnight reverse repo facility (ON RRP rate). In this post, we explore how these tools steer the federal funds rate within the Federal Reserve’s target range and how effective they have been at supporting rate control.
    Keywords: Pass-through; monetary policy implementation; Fed funds; Federal Reserve
    JEL: E52
    Date: 2023–08–14
  14. By: Umam Khoirul (UNIDA Gontor - University of Darussalam Gontor); Muhammad Atha Mahdi (UNIDA Gontor - University of Darussalam Gontor); Alfarid Fedro (UNIDA Gontor - Univerisity of Darussalam Gontor)
    Abstract: The global crisis and the COVID-19 pandemic have intensified the debate surrounding Modern Monetary Theory (MMT), particularly as nations resort to budget deficits. MMT economists argue that the central government, not constrained by fiscal limits, can maintain effective demand to achieve public goals like full employment and economic growth. However, economists remain skeptical about the permissiveness of MMT in generating new money. Extensive research is needed to explore the foundation of money supply and demand, examining if it truly achieves economic goals or leads to failure. Umer Chapra offers a profound monetary perspective, considering the demand and supply of money in the Islamic monetary system that aims for justice. This study aims to examine MMT's money demand and supply from Chapra's viewpoint, incorporating its economic goals. Employing a qualitative approach based on library research, this study finds that the endogenous MMT money demand model requires revision within Chapra's framework. To avoid misallocation and achieve economic objectives, the study suggests adopting Chapra's recommendations, such as eliminating bank interest in credit allocation and controlling unproductive and speculative money demand. This ensures that the MMT idea of endogenous money functions properly. However, further research is needed to address the techniques for avoiding money demand in the speculative sector, an area where Chapra's work lacks detail. Collaboration among Muslim economists can fill this gap and enrich the discussion. By bridging this gap, this study contributes to the ongoing discussion on monetary policy and provides valuable insights for policymakers and economists.
    Keywords: Modern Monetary Theory (MMT), Money Demand, Money Supply, Endogenous Money, Islamic Monetary System
    Date: 2023–12–12
  15. By: Mr. Suman S Basu; Ms. Emine Boz; Ms. Gita Gopinath; Mr. Francisco Roch; Ms. Filiz D Unsal
    Abstract: We develop a tractable small-open-economy framework to characterize the constrained efficient use of the policy rate, foreign exchange (FX) intervention, capital controls, and domestic macroprudential measures. The model features dominant currency pricing, shallow FX markets, and occasionally-binding external and domestic borrowing constraints. We characterize the conditions for the “traditional prescription”—relying on the policy rate and exchange rate flexibility—to be sufficient, even if externalities persist. The conditions are satisfied for world interest rate shocks if FX markets are deep. By contrast, we show that to manage non-fundamental inflow surges and taper tantrums related to local currency debt, capital inflow taxes and FX intervention should be used instead of the policy rate and exchange rate flexibility. In the realistic case where countries face both shallow FX markets and external borrowing constraints, we establish that some kinds of FX mismatch regulations may reduce the external debt limit friction but worsen FX market depth. Finally, we show that capital controls and domestic macroprudential measures cease to be perfect substitutes if there is a risk that the domestic borrowing constraint binds as a result of the transmission of the global financial cycle.
    Keywords: integrated policy framework; monetary policy; capital controls; foreign exchange intervention; macroprudential policies
    Date: 2023–08–04
  16. By: Mario Forni; Luca Gambetti; Nicolò Maffei-Faccioli; Luca Sala
    Abstract: Financial shocks represent a major driver of fluctuations in tail risk, defined as the 5th percentile of the forecast distributions of output and inflation. Since the variance and the asymmetry of the forecast distributions are largely driven by the left tail, financial shocks turn out to play a prominent role for distribution dynamics. Monetary policy shocks also play a role in shaping risk, although its effects are smaller than those of financial shocks. These findings are obtained using a novel econometric approach which combines quantile regressions and Structural VARs.
    Keywords: Tail Risk, Uncertainty, Skewness, Forecast Distribution, SVAR, Financial shocks, Monetary Policy Shocks, Quantile Regressions
    JEL: C32 E32
    Date: 2023–03
  17. By: Meller, Barbara; Soons, Oscar
    Abstract: How do central bank digital currencies (CBDC) impact the balance sheets of banks and central banks? To tackle this question empirically, we built a constraint optimisation model that allows for individual banks to choose how to respond to outflows of deposits, based on cost considerations and subject to the availability of reserves and collateral, within the individual banks and system wide, and for a given level of liquidity risk tolerance. We simulate the impact of a fictitious digital euro introduction in the third quarter of 2021, using data from over 2, 000 euro area banks. That impact depends on i) the number of deposits withdrawn and the speed at which this occurs, ii) the liquidity available within the banking system at the time of the digital euro introduction, iii) the liquidity risk preferences of the markets and supervisors, iv) the bank’s business model, and v) the functioning of the interbank market. We find that a €3, 000 digital euro holding limit per person, as suggested by Bindseil (2020) and Bindseil and Panetta (2020), would have been successful in containing the impact on bank liquidity risks and funding structures and on the Eurosystem balance sheet, even in extremely pessimistic scenarios. JEL Classification: E52, E58, G21
    Keywords: digital currency, financial intermediation, financial stability, liquidity risk
    Date: 2023–08
  18. By: Jens H. E. Christensen; Simon Thinggaard Hetland
    Abstract: This article presents empirical evidence of a supply-induced transmission channel to longterm interest rates caused by a halt to government debt issuance. This is conceptually equivalent to a central bank operated asset purchase program, commonly known as quantitative easing (QE). However, as it involves neither asset purchases nor associated creation of central bank reserves, we refer to it as passive QE. For evidence, we analyze the response of Danish government bond risk premia to a temporary halt in government debt issuance announced by the Danish National Bank. The data suggest that declines in longterm yields during its enforcement reflected both reduced term premia, consistent with supply-induced portfolio balance effects, and increased safety premia, consistent with safe assets scarcity effects.
    Keywords: affine arbitrage-free term structure model; negative interest rates
    JEL: E43 E47 G12 G13
    Date: 2023–08–15
  19. By: Dominguez, Begona; Gomis-Porqueras, Pedro
    Abstract: This paper proposes a framework to examine the macroeconomic impact of having U.S. dollar swap arrangements, where domestic and foreign currencies are valued and where agents also have access to domestic short and long-term bonds that have differential pledgeability. Within this environment, we investigate how U.S. dollar swap lines affect inflation and debt dynamics in the small open economy when domestic quantitative easing and standard interest rate management policies are also enacted. We show different combinations of U.S. dollar swap lines, and domestic quantitative easing as well as interest rate management policies can deliver the same steady state. We also find that such policies imply different short-run dynamics. Moreover, we find that traditional stabilization policies are not operative when agents do not consume the first best. When calibrated to Australia during the pandemic and under some conditions, we find that a more favorable swap line (agents in the small open economy can obtain U.S. dollar cheaper than in the forex market) would have allowed to cut back on long-term bond purchases from 35% to 24% of GDP. We also show that swaps and quantitative easing dampen the fiscal eigenvalue, changing the speed of adjustment towards the long run equilibria. Moreover, we find that the region of indeterminacy is enlarged when more liquid quantitative easing policies and more favorable swaps are pursued. Finally, we show that swap lines have a differential impact on domestic and foreign consumption.
    Keywords: swaps, quantitative easing, repos, interest rate management
    JEL: E4 E40 E44 F4 F42
    Date: 2023–08
  20. By: Mohamed Er-Rahmany (LIREFIMO - Laboratoire Interdisciplinaire de Recherche en Economie, Finance et Management des Organisations - FSJES-Fès - Faculté des sciences Juridiques, Economiques et Sociales de Fès); Fouad Ben Elhaj
    Keywords: Faculté des sciences juridiques économiques et sociales BP 42 A Fès Maroc Monetary policy Central bank Exchange rate regimes . JEL Classification : E52 E58 E42. Paper type : Theoretical article, Faculté des sciences juridiques économiques et sociales BP 42 A Fès, Maroc Monetary policy, Central bank, Exchange rate regimes . JEL Classification : E52, E58, E42. Paper type : Theoretical article
    Date: 2023–05–30
  21. By: Constanza Martínez-Ventura; Julián A. Parra-Polania; Tatiana Mora-Arbeláez; Angélica Lizarazo-Cuéllar
    Abstract: This document reviews the potential macroeconomic effects of issuing a central bank digital currency (CBDC) for the use of individuals and businesses. A careful selection of the architecture, and the economic and technological design aspects of this digital form of central bank money that best suit the needs of Colombian economy is made to frame the analytical approach used to study these issues. The most salient results of the related literature are reviewed to establish the consequences of undertaking this initiative. For the set of selected assumptions, we find that the expected macroeconomic consequences are negligible. ******RESUMEN: Este documento revisa los potenciales efectos macroeconómicos de emitir una moneda digital de banco central (CBDC) para uso de las personas y negocios. Se realiza una selección cuidadosa de la arquitectura, y de los aspectos de diseño económico y tecnológico de esta forma de dinero digital que mejor se ajustarían a las necesidades de la economía colombiana, para enmarcar la aproximación analítica que se usa para estudiar estos temas. Se revisan los resultados más destacados de la literatura relacionada para establecer las consecuencias esperadas de adelantar esta iniciativa. Para el conjunto de supuestos seleccionados, encontramos que los efectos macroeconómicos esperados son muy pequeños.
    Keywords: CBDC, macroeconomic effects, digital money, financial intermediation, efectos macroeconómicos, dinero digital, intermediación financiera
    JEL: E42 E51 E44 E52 E41 G21
    Date: 2023–08
  22. By: Sy-Hoa Ho (VNU University of Economics and Business); Luu Duc Toan Huynh (University of Strasbourg and University of Lorraine); Jamel Saadaoui (University of Strasbourg and University of Lorraine); Gazi Uddin (Linköping University); Joshua Azienman (University of Southern California)
    Abstract: The great financial crisis has brought increased attention to the consequences of international reserves holdings. In an era of high financial integration, we investigate the relationship between the real exchange rate and international reserves using nonlinear regressions and panel threshold regressions over 110 countries from 2001 to 2020. We capture the buffer effect of international reserves, which is more pronounced in Europe and Central Asia, above a threshold of 17%. Unlike previous literature, our study shows how financial institution development plays an essential role in explaining the buffer effect of international reserves. Countries with low-developed financial institutions may use the international reserves as a shield to deal with the negative consequences of terms-of-trade shocks on the real exchange rate. We also found that the buffer effect is stronger in countries with intermediate levels of financial openness.
    Date: 2023–08–11
  23. By: Demgensky, Lisa; Fritsche, Ulrich
    Abstract: Since 2021, the inflation rate in Germany and the euro area has increased significantly. At the same time, there are increasing signs of ``de-anchoring'' of inflation expectations in Germany. This paper - building on the approach of Andre et al. (2022) - examines in a pilot study survey-based narratives for the rising inflation together with socio-economic factors. A mixed-methods approach is used to classify the narratives, with clustering based on statistical criteria. A regression analysis is used to examine the relationship between socio-economic factors and narratives on the one hand, and the relationship between narratives/clusters of narratives and a de-anchoring of inflation expectations on the other hand. We can associate certain narratives with socio-economic characteristics and political partisanship. Narrative complexity is a function of education and literacy. Narrative clusters correspond to certain milieus and dimensions of socio-economic stratification. Narratives of supply shortages and price gouging are positively correlated with anchored expectations; demand and government plus other narratives are negatively correlated with anchored expectations.
    Keywords: Narratives, expectation formation, inflation, Germany
    JEL: E31 E32 E71
    Date: 2023
  24. By: Christian Bayer; Alexander Kriwoluzky; Gernot J. Müller; Fabian Seyrich
    Abstract: How does a monetary union alter the impact of business cycle shocks at the household level? We develop a Heterogeneous Agent New Keynesian model of two countries (HANK2) and show in closed form that a monetary union shifts the adjustment to a shock horizontally—across countries—within the brackets of the union-wide wealth distribution rather than vertically—that is, across the brackets of the union-wide wealth distribution. Calibrating the model to the euro area reveals that a monetary union alters the impact of shocks most strongly in the tails of the wealth distribution but leaves the middle class almost unaffected.
    Keywords: HANK2, OCA theory, Two-country model, monetary union, spillovers, monetary policy, heterogeneity, inequality, households
    JEL: F45 E52 D31
    Date: 2023–08
  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: Simplice A. Asongu (Oxford, UK); Sara le Roux (Oxford, UK)
    Abstract: This study investigates the role of mobile money innovations in the incidence of income inequality on poverty and severity of poverty in 42 sub-Saharan African countries over the period 1980 to 2019. Mobile money innovations are understood as the mobile used to send money and the mobile used to pay bills online while income inequality is measured with the Gini index. Poverty is measured as the poverty headcount ratio while the severity of poverty is generated as the squared of the poverty gap index. The empirical evidence is based on interactive Quantile regressions. The following main findings are established. (i) Income inequality unconditionally reduces poverty and the severity of poverty though the significance is not throughout the conditional distributions of poverty and the severity of poverty. (ii) Mobile money innovations significantly moderate the positive incidence of income inequality on poverty and the severity of poverty in some quantiles. (iii) Positive net effects are apparent exclusively in the poverty regressions. (iv) Given the negative conditional effects, policy thresholds or minimum mobile money innovation levels needed to completely nullify the positive incidence of income inequality on poverty are provided: 27.666 (% age 15+) and 24.000 (% age 15+) of the mobile used to send money in the 50th and 75th quantiles, respectively and 16.272 (% age 15+) and 13.666 (% age 15+) of the mobile used to pay bills online in the 10th and 50th quantiles, respectively. Policy implications are discussed with respect of SDG1 on poverty reduction and SDG10 on inequality mitigation.
    Keywords: Mobile phones; financial inclusion; poverty; inequality; Africa
    JEL: G20 O40 I10 I20 I32
    Date: 2023–01
  27. By: Beck, Roland (European Central Bank); Coppola, Antonio (Stanford U); Lewis, Angus (Stanford U); Maggiori, Matteo (Stanford U); Schmitz, Martin (European Central Bank); Schreger, Jesse (Columbia U)
    Abstract: We reassess the pattern of Euro Area financial integration adjusting for the role of “on- shore offshore financial centers†(OOFCs) within the Euro Area. While the Euro Area records large levels of international investment both within and outside of the currency union, much of these flows are intermediated via the OOFCs of Luxembourg, Ireland, and the Netherlands. These countries have dual roles as both hubs of investment fund intermediation and centers of securities issuance by foreign firms. We look through both roles and restate the pattern of Euro Area investment positions by linking fund sector investments to the underlying holders and securities issuance to the ultimate parent firms. Our new estimates of Euro Area investment allow us to document a number of stylized facts. First, the Euro Area’s estimated gross external position is smaller than in official data. Second, the Euro Area is more biased towards euro-denominated assets and away from US dollar and other foreign currency assets than in official data. Third, the Euro Area is less financially integrated than it appears. Fourth, European financial integration occurs disproportionately through securities issued in OOFCs rather than via domestic capital markets. Fifth, there is a North-South bias in Euro Area financial integration whereby Northern European countries are relatively underweight securities issued by Southern European countries.
    JEL: F3 F4 G2 G3
    Date: 2023–05
  28. By: Claussen, Carl Andreas (Monetary Policy Department, Central Bank of Sweden); Segendorff, Björn (BIS Innovation Hub); Seitz, Franz (Weiden Technical University of Applied Sciences, Germany)
    Abstract: We estimate the demand for transaction and non-transaction cash balances in Canada, Denmark, Iceland, Sweden and Norway over the last decades using the seasonal method. These countries share many features that are relevant for cash demand, but nevertheless show large differences in terms of aggregate cash balances. While Canada, Iceland and Denmark have seen increased aggregate cash balances, Norway and especially Sweden have seen a dramatic decline. We find that transaction balances have decreased somewhat in all of the countries and the differences in aggregated cash balances is due to differences in the development of non-transactional cash balances. We argue that different de facto legal tender status, crisis exposures, foreign demand and cash supply-side policies help explain these findings.
    Keywords: cash; banknotes; seasonal method; transactions; hoarding
    JEL: E41 E51 E58
    Date: 2023–07–01
  29. By: Postel-Vinay, Natacha; Collet, Stephanie
    Abstract: This paper explores the origins of German banks’ risk-taking in the years preceding the 1931 crisis. The 1920s were marked by a large and prolonged increase in capital flows into Germany, chiefly from the United States and the United Kingdom. This coincided, at the individual bank level, with a rise in leverage and a fall in liquidity. We examine possible connections between the two phenomena. Our analysis is based on a combination of historiographical work and statistical modelling based on a newly hand-collected bimonthly dataset on German reporting banks from 1925 to 1935. Bank by bank we examine the effects of foreign inflows on decisions related to leverage, lending, and liquidity. The Dawes Plan of 1924 and the relative absence of a too-big-to-fail (TBTF) environment allow us to mitigate endogeneity concerns. We suggest that while capital inflows did not seem to impact banks’ liquidity decisions, their impact on leverage was non-negligeable.
    Keywords: capital flows; credit; financial crisis; financial development; financial globalization; foreign debt; international lending; money supply; Wiley deal
    JEL: E51 F34 G21 N24 N14
    Date: 2023–07–26
  30. By: Yu, Haoyang; Sun, Yutong; Liu, Yulin; Zhang, Luyao
    Abstract: Historically, gold and silver have played distinct roles in tra- ditional monetary systems. While gold has primarily been revered as a superior store of value, prompting individuals to hoard it, silver has com- monly 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 Lite- coin, once likened Bitcoin to gold and Litecoin to silver. To validate this analogy, our study employs several metrics, including unspent transac- tion 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 re- sults 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: 2023–07–31
  31. By: Edwards, Paul; Baden-Fuller, Charles; Pissarides, Christopher; Rubery, Jill; Crouch, Colin; Taylor-Gooby, Peter
    Abstract: Rising inflation and a wave of strikes during 2022 have aroused echoes of the 1970s. In this article, experts from the fields of economics, sociology and social policy consider what has changed, what remains the same, and what the lessons might be – with a notable degree of agreement. Raising wages, particularly for the lower-paid groups in the public sector, is likely to reduce poverty and has a very low risk of generating further price inflation. Giving in on pay will be costly, and may have to be funded by taxes in the short term. In the longer run the only way out of our difficulties will be more effective growth generated through improved productivity.
    Keywords: Inflation; poverty; productivity; strikes; trade unions; wages
    JEL: J1
    Date: 2023–03–10
  32. By: Anders Brownworth; Jon Durfee; Michael Junho Lee; Antoine Martin
    Abstract: Permissionless blockchains, which support the most popular cryptocurrency networks like Bitcoin and Ethereum, have shown that it is possible to transfer value without relying on centralized trusted third parties, something that is new and remarkable (although perhaps most clearly useful for less developed financial markets). What makes permissionless blockchains able to transfer value without relying on a small number of trusted third parties is the combination of several components that all need to work together. The components themselves are not particularly new, but the combination of these components is more than the sum of its parts. In this post, we provide a high-level overview of these components and how they interact, taking Bitcoin as an example.
    Keywords: cryptocurrencies; Crypto; digital currencies; Bitcoin; blockchains; permissionless; trust
    JEL: G1
    Date: 2023–08–16
  33. By: Frédéric A Hayek (UCA - Université Clermont Auvergne, LIMOS - Laboratoire d'Informatique, de Modélisation et d'Optimisation des Systèmes - ENSM ST-ETIENNE - Ecole Nationale Supérieure des Mines de St Etienne - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne - INP Clermont Auvergne - Institut national polytechnique Clermont Auvergne - UCA - Université Clermont Auvergne); Pascal Lafourcade (UCA - Université Clermont Auvergne, LIMOS - Laboratoire d'Informatique, de Modélisation et d'Optimisation des Systèmes - ENSM ST-ETIENNE - Ecole Nationale Supérieure des Mines de St Etienne - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne - INP Clermont Auvergne - Institut national polytechnique Clermont Auvergne - UCA - Université Clermont Auvergne); Ariane Tichit (UCA - Université Clermont Auvergne, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: Blockchains are finding evermore applications. One underused application of blockchains is local currencies. Local currencies are currencies that float in a restricted area in purpose of growing the local economy by forcing local spending. We introduce the concept of geographical demurrage: money loses of its value the farther away it is spent. We construct four generic local cryptocurrencies: a regular one mimicking local paper money; a second that restricts spending to the dedicated geographical area; a third that utilizes geographical demurrage for maintaining the system, and a fourth that lifts the geographical restrictions and maintains geographical demurrage, thus creating a universal local cryptocurrency: a currency that loses value correspondingly to the distance between its point of reception and point of spending. So without the need to restrict spending to a given geographical sphere, the currency will always encourage local spending, no matter where it is spent; yielding a universal local cryptocurrency we name LCoin.
    Keywords: Blockchain, Cryptocurrency, Local Currency
    Date: 2023–10–11

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