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on Monetary Economics |
| By: | Lena Dräger |
| Abstract: | This paper surveys the literature on the role and effects of central bank communication with the general public, particularly regarding the formation of macroeconomic expectations. It starts by giving a brief overview of the recent “communication revolution” in central bank communication. The challenges for central bank communication with the public are outlined by surveying the evidence about low average knowledge on inflation and monetary policy in the population. Next, I evaluate the effects of direct communication, distinguishing between challenges to getting the attention of the public and effects of information on the public’s inflation expectations once attention is gained. Finally, I review the role of the media as transmitter of central bank communication to the public. |
| Keywords: | central bank communication, consumers, households, literature survey, RCT studies |
| JEL: | E52 E58 D84 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10713&r=mon |
| By: | Olivo, Victor |
| Abstract: | This paper discusses numerous and serious conceptual criticisms of arguments and theories that consider that inflation and the price level are exclusively a fiscal phenomenon in which money plays no distinctive role. The price level, substantial acceleration of the inflation rate or sustained inflation rates of two digits or more cannot be explained by expectations or changes in expectations alone as Sargent (1982), Woodford (2008) and the FTPL proponents claim. The empirical evidence obtained using cointegration and error correction models estimated using linear and non-linear techniques provides robust indication that money plays a crucial role in understanding the long-run evolution of the price level and the short-run dynamics of inflation. |
| Keywords: | Price Level; Inflation; Monetarism, Monetary, Monetary Base, Monetary Policy, Money, Money Stock. |
| JEL: | E31 E52 |
| Date: | 2023–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118993&r=mon |
| By: | Kishor, N. Kundan; Pratap, Bhanu |
| Abstract: | This paper explores the effects of India's adoption of inflation targeting (IT) as a monetary policy framework in 2016 on long-term inflation expectations in the private sector. Using data from 2010 to 2022, including inflation forecasts from professional forecasters and an inflation sentiment index derived from newspaper articles, our analysis assesses the impact of inflation sentiment on both long-run and short-run inflation expectations. Our findings suggest that post-2016, long-term inflation expectations became less sensitive to inflation sentiment, indicating that India's transition to IT may have contributed to anchoring these expectations in line with the central bank's target. |
| Keywords: | Inflation Targeting, Inflation Expectations, Unobserved Component Model, Inflation Sentiment, Indian Economy |
| JEL: | E31 E52 E58 |
| Date: | 2023–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118951&r=mon |
| By: | Jorge Miranda-Pinto; Mr. Andrea Pescatori; Ervin Prifti; Guillermo Verduzco-Bustos |
| Abstract: | Monetary policy influences inflation dynamics by exerting impact on a diverse array of commodity prices. At high frequencies, we show that a 10 basis points increase in US monetary policy rate reduces commodity prices between 0.5% and 2.5%, after 18 to 24 business days. Beyond the dollar appreciation channel, the effects are larger for highly storable and industrial commodities, consistent with the cost of carry and the expected demand channel. We then study the quantitative importance of the commodity-price channel of monetary policy on domestic and international inflation at longer horizons (6-36 months). The results indicate that the response of commodity prices—oil, base metals, and food prices—to monetary policy accounts for 47% of the total effect of US monetary policy on US headline inflation, and 57% of the effect of US monetary policy on other countries’ headline inflation. The commodity price channel on core inflation is smaller and mainly driven by base metal prices. Finally, the commodity-price channel of ECB monetary policy is smaller, and it mainly operates through its effect on energy prices. |
| Keywords: | Monetary Policy; US monetary policy shock; ECB monetary policy shock; Commodity prices; commodity price channel; inflation; energy prices; food prices; metals prices; core inflation |
| Date: | 2023–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/215&r=mon |
| By: | Blix Grimaldi, Marianna (Swedish National Dept Office); Kapoor, Supriya (Trinity College Dublin) |
| Abstract: | Though unconventional monetary policy is still new, already there is a conventional wisdom that the impact of monetary policy is related to the composition of the asset mix. This turns out to be incomplete and potentially misleading. In this paper, we find more complex effects on bank lending from Quantitative Easing (QE) introduced by the Federal Reserve Bank in 2008. The novelty of our approach is to augment the model with bank-level heterogeneity. While there is a relation between lending and the type of assets purchased by the central bank, the impact on similarly QE-exposed banks is also crucially dependent on banks’ solvency and liquidity exposures. Our results highlight that it is necessary to take heterogeneity of exposure into account when assessing the effects of QE. |
| Keywords: | large-scale asset purchases; Federal Reserve; quantitative easing; heterogeneity; liquidity; solvency |
| JEL: | E52 E58 G21 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0428&r=mon |
| By: | Athanasios Orphanides (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail: athanasios.orphanides@mit.edu)) |
| Abstract: | This paper examines the policy experience of the Fed, ECB and BOJ during and after the Covid-19 pandemic and draws lessons for monetary policy strategy and its communication. All three central banks provided appropriate accommodation during the pandemic but two failed to unwind this accommodation in a timely manner. The Fed and ECB guided real interest rates to inappropriately negative levels as the economy recovered from the pandemic, fueling high inflation. The policy error can be traced to decisions regarding forward guidance on policy rates that delayed lift-off while the two central banks continued to expand their balance sheets. The Fed and the ECB fell into the forward guidance trap. This could have been avoided if policy were guided by a forward-looking rule that properly adjusted the nominal interest rate with the evolution of the inflation outlook. |
| Keywords: | Monetary policy strategy, Forward guidance, Policy rules |
| JEL: | E52 E58 E61 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:23-e-06&r=mon |
| By: | Mr. Pragyan Deb; Julia Estefania-Flores; Melih Firat; Davide Furceri; Siddharth Kothari |
| Abstract: | This paper revisits the transmission of monetary policy by constructing a novel dataset of monetary policy shocks for an unbalanced sample of 33 advanced and emerging market economies during the period 1991Q2-2023Q2. Our findings reveal that tightening monetary policy swiftly and negatively impacts economic activity, but the effects on inflation and inflation expectations takes time to fully materialize. Notably, there exist significant heterogeneities in the transmission of monetary policy across countries and time, depending on structural characteristics and cyclical conditions. Across countries, monetary policy is more effective in countries with flexible exchange rate regime, more developed financial systems, and credible monetary policy frameworks. In addition, we find that monetary policy transmission is stronger when uncertainty is low, financial conditions are tight and monetary policy is coordinated with fiscal policy—that is, when the stances move in the same direction. |
| Keywords: | Monetary policy transmission; heterogeneity; inflation; statedependence |
| Date: | 2023–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/204&r=mon |
| By: | Silvia Albrizio; Allan Dizioli; Pedro Vitale Simon |
| Abstract: | Using a novel approach involving natural language processing (NLP) algorithms, we construct a new cross-country index of firms' inflation expectations from earnings call transcripts. Our index has a high correlation with existing survey-based measures of firms' inflation expectations, it is robust to external validation tests and is built using a new method that outperforms other NLP algorithms. In an application of our index to United States, we uncover some facts related to firm's inflation expectations. We show that higher expected inflation translates into future inflation. Going into the firms level dimension of our index, we show departures from a rational framework in firms' inflation expectations and that firms' attention to the central enhances monetary policy effectiveness. |
| Keywords: | rms' inflation expectations; Firms' earnings calls transcripts; Natural Language processing; GPT3.5; Monetary policy |
| Date: | 2023–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/202&r=mon |
| By: | Philipp Roderweis; Jamel Saadaoui; Francisco Serranito |
| Abstract: | An unintended by-product of asset purchases by the European Central Bank (ECB) has been a huge increase in excess reserves, leading to a structural liquidity surplus in the banking sector of the euro area. These exogenously imposed excess reserves imply higher balance sheet costs, forcing banks to offset these costs by changing their lending behavior. We observe this effect particularly in periods of low-interest rates. Thus, we identify a shock that represents an exogenous imposition of excess reserves on banks. We then employ linear and nonlinear local projection methods to analyze how lending changes in the context of unconventional monetary policy. We find that excess reserves injected by the ECB crowd out certain types of credit. An increase in excess liquidity does not stimulate lending to nonfinancial corporations in the euro area. On the contrary, it tends to discourage it while amplifying household credit for consumption and housing, as well as loans to financial corporations. Impulse response analysis via smooth local projection methods highly confirms these findings. |
| Keywords: | excess reserves, bank lending channel, bank balance sheet costs, local projection, smooth local projection. |
| JEL: | C32 E44 E51 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2023-34&r=mon |
| By: | Lena Dräger; Michael J. Lamla; Michael Lamla |
| Abstract: | After the financial crisis of 2008, central banks around the world have increased their communication efforts to reach consumers, with the aim of both guiding and anchoring their inflation expectations. For the expectations channel of monetary policy to work as intended, central banks need a thorough understanding of the formation process of expectations by the general public and of the relationship between expectations and economic choices. This warrants reliable and detailed data on consumers’ expectations of macroeconomic variables such as inflation or interest rates. We thus survey the available survey data and issues regarding the measurement of macroeconomic expectations. Furthermore, we discuss the research frontier on important aspects of the expectations channel: We evaluate the evidence on whether expectations are formed consistently with standard macroeconomic relationships, discuss the insights with respect to the anchoring of inflation expectations, explore the role of narratives and preferences and lastly, we survey the research on causal effects of central bank communication on expectations and economic choices. |
| Keywords: | consumers’ macroeconomic expectations, central bank communication, survey data |
| JEL: | E52 E30 D84 C83 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10709&r=mon |
| By: | Melih Firat; Otso Hao |
| Abstract: | What are the contributions of demand and supply factors to inflation? To address this question, we follow Shapiro (2022) and construct quarterly demand-driven and supply-driven inflation series for 32 countries utilizing sectoral Personal Consumption Expenditures (PCE) data. We highlight global trends and country-specific differences in inflation decompositions during critical periods such as the great financial crisis of 2008 and the recent inflation surge since 2021. Validating our inflation series, we find that supply-driven inflation is more reactive to oil shocks and supply chain pressures, while demand-driven inflation displays a more pronounced response to monetary policy shocks. Our results also suggest a steeper Phillips curve when inflation is demand-driven, holding significant implications for effective policy design. |
| Keywords: | Inflation decomposition; demand vs supply; Phillips curve; monetary policy; supply chain pressures |
| Date: | 2023–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/205&r=mon |
| By: | Anh D. M. Nguyen; Hajime Takizawa; Iglika Vassileva |
| Abstract: | This paper analyses inflation dynamics in Bulgaria using different complementary econometrics technics. We find that common factors play a large role in the EU’s inflation variation but impact individual countries differently due to country-specific factors. Greater weight of energy and food in Bulgaria’s CPI basket amplifies the impact of shocks on headline inflation. Furthermore, second-round effects in Bulgaria are likely pronounced, associated with a higher inflation persistence compared to the EU countries. Recent ECB monetary tightening has been insufficient for Bulgaria and its transmission is weak. Fiscal policy supported the recovery from the COVID crisis but added to inflation. |
| Keywords: | Inflation; Monetary policy; Fiscal policy; ECB interest rates; Phillips curve; Principal Component Analysis; VARl Sign restrictions.; inflation dynamics; HICP inflation; ECB Policy rate; inflation variation; inflation development; inflation in EU country; Energy prices; Inflation persistence; Food prices; Global |
| Date: | 2023–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/212&r=mon |
| By: | Vivian Chu; Tatjana Dahlhaus; Christopher Hajzler |
| Abstract: | This paper outlines and assesses the various channels through which digitalization can affect prices of goods and services. |
| Keywords: | Digitalization; Inflation and prices; Market structure and pricing; Monetary policy |
| JEL: | E31 E52 D2 L11 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:23-27&r=mon |
| By: | Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger |
| Abstract: | We document how supply-chain pressures, household inflation expectations, and firm pricing power interacted to induce the pandemic-era surge in consumer price inflation in the euro area. Initially, supply-chain pressures increased inflation through a cost-push channel and raised inflation expectations. Subsequently, the cost-push channel intensified as firms with high pricing power increased product markups in sectors witnessing high demand. Eventually, even though supply-chain pressures eased, these firms were able to further increase markups due to the stickiness of inflation expectations. The resulting persistent impact on inflation suggests supply-side impulses can generalize into broad-based inflation via an interaction of household expectations and firm pricing power. |
| JEL: | D84 E31 E58 L11 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31790&r=mon |
| By: | Raouf Boucekkine (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, ESC Rennes School of Business - ESC [Rennes] - ESC Rennes School of Business); Mohammed Laksaci (Ecole Supérieure de Banque); Mohamed Touati-Tliba (ESC - Ecole Supérieure de Commerce d'Alger) |
| Abstract: | Since the start of the oil counter-shock in June 2014, Algeria has experienced unprecedented twin deficits. The excessive monetisation of the public deficit coupled with other deep anomalies in the economy of this country acutely calls for reconsideration of its monetary policy. To this end a prior study of the long-run stability of money demand is needed. We estimate the demand for money for monetary aggregates M1 and M2, and cash in Algeria over the period 1979–2019, and study its long-run stability. We show that the transaction motive is significant for all three aggregates, especially for the demand for cash, reflecting the weight of informal economy "practices". The elasticity of the scale variable is very close to unity for M2 and M1, and even equal to unity for cash demand (1.006). The elasticity of inflation is also significant for all three aggregates, although its level is higher in the case of cash demand (−6.474). Despite the persistence of certain financial repression mechanisms, interest rate elasticity is significant for all three aggregates, but higher for M1 and cash. The same observation is made for elasticity of the exchange rate, reflecting the effect of monetary substitution, especially for M1 and cash. Finally, our study concludes that the demand for money in terms of M1 remains stable, the same observation being confirmed for the M2 aggregate. However, the demand for fiat currency proves not to be stable. The consequences for the optimal design of monetary policy in Algeria are clearly stated. |
| Keywords: | Monetary policy, Money demand, Long-run stability, Resource-rich countries, Algeria, Co-integration |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03545424&r=mon |
| By: | Pascal Seiler (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Barbara Rudolf (Swiss National Bank, Monetary Policy Analysis,) |
| Abstract: | We provide new evidence on price rigidity at the product level based on microdata underlying the Swiss consumer price index from 2008 to 2020. We find that the frequency of price changes has increased over the last decade, particularly among products where collection switched to online prices, reflecting the rise of e-commerce. Furthermore, price changes tend to be synchronized within rather than across stores. Time variations in inflation can be attributed mainly to variations in the frequency of both price increases and price decreases. In the first year of the pandemic, the frequency of price adjustments changed little on average, while temporary sales responded countercyclically to the respective demand conditions across sectors. |
| Keywords: | Price rigidities, Price-setting, consumer prices, Inflation, COVID-19 pandemic |
| JEL: | E31 E5 L11 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:22-506&r=mon |
| By: | Hassan Afrouzi |
| Abstract: | This paper studies how competition affects firms’ expectations in a new dynamic general equilibrium model with rational inattention and oligopolistic competition where firms acquire information about their competitors’ beliefs. In the model, firms with fewer competitors are less attentive to aggregate variables—a novel prediction supported by survey evidence. A calibrated version of the model matches the relationship between firms’ numbers of competitors and their uncertainty about aggregate inflation as a non-targeted moment. A quantitative exercise reveals that firms’ strategic inattention to aggregates significantly amplifies monetary non-neutrality and shifts output response disproportionately towards less competitive oligopolies by distorting relative prices. |
| JEL: | E31 E32 E71 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31796&r=mon |
| By: | Sangyup Choi; Kimoon Jeong; Jiseob Kim |
| Abstract: | This paper underscores the underappreciated role of bank mortgage lending standards in conjunction with imbalances stemming from the common monetary policy framework as drivers of divergent economic trajectories in the euro area’s core and periphery countries. To illustrate the mechanism, we compute a country-specific monetary policy stance gap and estimate the panel VAR model of credit and macroeconomy for each group. While the widening gap—the accommodative stance of the ECB relative to individual economic conditions—induces a similar increase in the demand for mortgage credit in both regions, it is followed by markedly different responses of the supply side of mortgage credit: bank mortgage lending standards are relaxed (tightened) in periphery (core) countries, which can rationalize vastly different responses in mortgage credit, residential investment, and housing prices between the two Europes. In searching for the source of different bank lending behaviors, we find that banks in core countries, subject to tighter macroprudential policies and reduced profit margins, increase cross-border lending to periphery countries, enabling them to relax lending standards toward mortgage loans. |
| Keywords: | Euro area, mortgage credit, monetary policy stance gap, bank lending survey, macroprudential policy, cross-border banking flows |
| JEL: | E21 E32 E44 F52 G21 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-56&r=mon |
| By: | Priit Jeenas |
| Abstract: | I study the role of firms' balance sheet liquidity in the transmission of monetary policy to investment. In response to monetary contractions, U.S. firms with fewer liquid asset holdings reduce investment relatively more. This can be explained by their higher likelihood to issue debt and the implied exposure to borrowing cost fluctuations. I rationalize these results using a heterogeneous firm macroeconomic model with financial constraints, debt issuance costs, and differential returns on cash and borrowing. Compared to a framework which ignores liquidity considerations, monetary transmission to aggregate investment is slightly dampened and depends on liquid asset portfolios beyond net worth. |
| Keywords: | monetary policy, investment, financial frictions, firm heterogeneity |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1872&r=mon |
| By: | Dimitris Christopoulos; Peter McAdam; Elias Tzavalis |
| Abstract: | A new method refines the threshold vector autoregressive model used to study the effects of monetary policy. We contribute a new method for dealing with the problem of endogeneity of the threshold variable in threshold vector auto-regression (TVAR) models. Drawing on copula theory enables us to capture the dependence structure between the threshold variable and the vector of TVAR innovations, independently of the marginal distribution of the threshold variable. A Monte Carlo demonstrates that our method works well, and that ignoring threshold endogeneity leads to biased estimates of the threshold parameter and the variance-covariance error structure, thus invalidating dynamic analysis. As an application, we assess the effects of interest rate shocks on output and inflation: when “expected” inflation exceeds 3.6 percent, the effects of monetary policy are faster and stronger than otherwise. |
| Keywords: | VAR models; threshold models; monetary policy |
| JEL: | E40 E50 C32 |
| Date: | 2023–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:96762&r=mon |
| By: | Bańkowski, Krzysztof; Checherita-Westphal, Cristina; Muggenthaler, Philip; Jesionek, Julia |
| Abstract: | The recent spike in inflation, unprecedented in the history of the Economic and Monetary Union (EMU), has had major consequences for all areas of the economy, including public finances. This paper aims to provide a detailed assessment of the effects of high inflation on fiscal accounts in the euro area. Relying on the wealth of expertise in the Eurosystem – within the Working Group on Public Finance – it documents spending indexation arrangements in all euro area countries. Thanks to this knowledge, the ECB’s fiscal projection platform, which is the primary evaluation tool for this study, establishes a realistic link between prices and fiscal variables. The results of this paper bring into question the conventional wisdom on the overall positive effects of inflation on fiscal accounts. Indeed, the simulations point to adverse effects from the recent inflation surge, mainly triggered by an external supply shock, on budget balances during 2022-24. JEL Classification: C3, E3, E6 |
| Keywords: | euro area, fiscal policy, inflation, macroeconomic simulations |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2023332&r=mon |
| By: | Régis Barnichon; Geert Mesters |
| Abstract: | How should we evaluate and compare the performances of policy institutions? We propose to evaluate institutions based on their reaction function, i.e., on how well they reacted to the different shocks that hit the economy. We show that reaction function evaluation is possible with only two sufficient statistics (i) the impulse responses of the policy objectives to non-policy shocks, which capture what an institution did on average to counteract these shocks, and (ii) the impulse responses of the policy objectives to policy shocks, which capture what an institution could have done to counteract the shocks. A regression of (i) on (ii) —a regression in impulse response space— allows to compute the distance to the optimal reaction function, and thereby evaluate and rank institutions. We use our methodology to evaluate US monetary policy; from the Gold standard period, the early Fed years and the Great Depression, to the post World War II period, and the post-Volcker regime. We find no material improvement in the reaction function over the first 100 years, and it is only in the last 30 years that we estimate large and uniform improvements in the conduct of monetary policy. |
| Keywords: | optimal policy, reaction function, structural shocks, impulse responses, monetary history |
| JEL: | C14 C32 E32 E52 N10 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1873&r=mon |
| By: | Kevin L. Kliesen |
| Abstract: | In 2022, the Fed started its current tightening cycle. How does it compare with other cycles in the past 40 years in terms of the magnitude of policy rate hikes? |
| Keywords: | monetary policy tightening; policy rate |
| Date: | 2023–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:l00001:96584&r=mon |
| By: | Valentina Flamini; Diego B. P. Gomes; Bihong Huang; Ms. Lisa L Kolovich; Aina Puig; Ms. Aleksandra Zdzienicka |
| Abstract: | We study the effects of monetary policy shocks on employment gender gaps in a panel of 22 countries using quarterly data from 1990 to 2019. Our results show that men’s employment falls more than women’s after contractionary monetary policy shocks, narrowing the employment gender gap over time. Two factors contribute to explaining this heterogeneous effect. First, a larger impact of monetary policy shocks on employment in the industry sector that employs more men. Second, the larger response of the employment gap in the sector (services) that employs the largest share of men and women. In terms of labor market adjustment, the narrowing of the gender employment gap is initially driven by a reduction in the gender unemployment gaps that, over time, results in an adjustment in the gender labor force participation gap—with men’s labor force participation dropping more than women’s. The effects are larger in countries with more flexible labor market regulations, higher gender wage gaps, and lower informal women’s employment compared to men’s. Finally, the effects are also larger for contractionary monetary policy shocks and during expansions. |
| Keywords: | Monetary policy; shocks; gender inequality; labor market; unemployment; labor force participation; monetary policy shock; gender employment gap; gender labor force participation gap; labor market gender gaps; men employment; employment gender gaps; Labor markets; Employment; Women |
| Date: | 2023–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/211&r=mon |
| By: | Kuznetsov, Dmitrii (Кузнецов, Дмитрий) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | The presented paper empirically accesses the determinants of invoice currency choice by Russian exporters. The relevance of the work is dictated by the sanctions imposed against Russia, which, among other things, make international settlements in the dominant currencies difficult and facilitate the transition of Russian exporters and importers to settlements in other currencies. The existing economic literature considers the invoice currency as one of the most important factors of the magnitude of the exchange rate passthrough into prices and quantities. The basic assumption of such models is short-term price rigidity in terms of invoice currency, which is in line with the data. The dominant view is that the choice of contract currency made by exporters based on the desired medium-term exchange rate pass-through, which in turn depends on company’s share in the market and the intensity of imported components using. In this paper using the detailed data of customs statistics of the Russian Federation it is show that key determinants of the Russian exporter’s contract currency choice are the competitor’s choice of the contract currency, the firm’s market share, the invoice currency import structure and firm productivity, as well as the degree of differentiation of the exported product. The main conclusion is that the currency structure of export payments will change due to changes in the currency structure of imports, and in many product markets the short-term stability of the share of Russian exporters will suffer, including due to difficulties in using the US dollar as the currency for nominating exports. |
| Keywords: | iexports, imports, dominant currencies, contract currency, invoice currency, microdata, strategic complementarities, differentiated products |
| JEL: | L23 F14 |
| Date: | 2023–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:w20220276&r=mon |
| By: | Olk, Christopher; Schneider, Colleen; Hickel, Jason |
| Abstract: | Degrowth lacks a theory of how the state can finance ambitious social-ecological policies and public provisioning systems while maintaining macroeconomic stability during a reduction of economic activity. Addressing this question, we present a synthesis of degrowth scholarship and Modern Monetary Theory (MMT) rooted in their shared understanding of money as a public good and their common opposition to artificial scarcity. We present two arguments. First, we draw on MMT to argue that states with sufficient monetary sovereignty face no obstacle to funding the policies necessary for a just and sustainable degrowth transition. Increased public spending neither requires nor implies GDP growth. Second, we draw on degrowth research to bring MMT in line with ecological reality. MMT posits that fiscal spending is limited only by inflation, and thus the productive capacity of the economy. We argue that efforts to deal with this constraint must also pay attention to social and ecological limits. Based on this synthesis we propose a set of monetary and fiscal policies suitable for a stable degrowth transition, including a stronger regulation of private finance, tax reforms, price controls, public provisioning systems and an emancipatory job guarantee. This approach can support broad democratic mobilization for a degrowth transition. |
| Keywords: | degrowth; ecological macroeconomics; fiscal policy; job guarantee; Modern Monetary Theory; universal public services |
| JEL: | J1 |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120343&r=mon |
| By: | Giovanni Borraccia; Mr. Raphael A Espinoza; Vincenzo Guzzo; Romain Lafarguette; Fuda Jiang; Vina Nguyen; Miguel A. Segoviano; Mr. Philippe Wingender |
| Abstract: | We develop a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology. We then estimate financial condition indexes (FCIs) across European economies, both at the aggregate and sectoral levels. We decompose the changes in FCs into several factors including credit availability and costs, price of risk, policy stance, and funding constraints. Our results show that FCs loosened during the pandemic thanks to policy support but started to tighten significantly since mid-2021. Using the inverse probability weighting method over the sample period from 2000 to 2023, we find that a shift from a neutral to a tight FCI regime such as the ongoing episode for most European countries will on average lower output and inflation by 2.2 percent and 0.7 percentage points respectively and increase unemployment by 0.3 percentage points over a three-year horizon. |
| Keywords: | Financial condition index; partial least square; funding constraints; credit availability and costs; price of risk; policy stance; inverse probability weighting; financial conditions in Europe; FCI regime; IMF working paper 2023/209; FCI indicator; measure of financial conditions; Inflation; Asset prices; Monetary tightening; Credit; Financial cycles; Europe; Global |
| Date: | 2023–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/209&r=mon |
| By: | Fernando M. Martin |
| Abstract: | An analysis suggests certain economic factors, such as excess savings, and stubborn price increases in services are risks that might delay or potentially reverse the decline in overall inflation. |
| Keywords: | inflation; excess savings |
| Date: | 2023–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:l00001:97193&r=mon |