nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒12‒18
24 papers chosen by
Bernd Hayo, Philipps-Universität Marburg

  1. The Monetary Policy Haircut Rule By Althanns, Markus; Gersbach, Hans
  2. The Energy-Price Channel of (European) Monetary Policy By Ider, Gökhan; Kriwoluzky, Alexander; Kurcz, Frederik; Schumann, Ben
  3. Optimal Monetary Policy with and without Debt By Chafwehé, Boris; Oikonomou, Rigas; Priftis, Romanos; Vogel, Lukas
  4. Limited Energy Supply, Sunspots, and Monetary Policy By Gornemann, Nils; Hildebrand, Sebastian; Kuester, Keith
  5. Quantitative Easing During the COVID-19 Pandemic: A Cross-Country Study By Maciej Stefański
  6. The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy By Richard K. Crump; Marco Del Negro; Keshav Dogra; Pranay Gundam; Donggyu Lee; Ramya Nallamotu; Brian Pacula
  7. Monetary Rules, Financial Stability and Welfare in a non-Ricardian Framework By Adame Espinosa Francisco
  8. The Distributional Predictive Content of Measures of Inflation Expectations By James Mitchell; Saeed Zaman
  9. Central Bank Digital Currency and Privacy: A Randomized Survey Experiment By Syngjoo Choi; Bongseob Kim; Young-Sik Kim; Ohik Kwon
  10. A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy By Richard K. Crump; Marco Del Negro; Keshav Dogra; Pranay Gundam; Donggyu Lee; Ramya Nallamotu; Brian Pacula
  11. Disaggregated Inflation Dynamics in Thailand: Which Shocks Matter? By Nuwat Nookhwun; Pym Manopimoke
  12. Examining the Effect of Monetary Policy and Monetary Policy Uncertainty on Cryptocurrencies Market By Mohammadreza Mahmoudi
  13. Pandemic-Era Inflation Drivers and Global Spillovers By Julian di Giovanni; Ṣebnem Kalemli-Özcan; Alvaro Silva; Muhammed A. Yildirim
  14. The role of mobile characteristics on mobile money innovations By Asongu, Simplice; Odhiambo, Nicholas
  15. The independence of Central Banks, a reductio ad impossibile By Ion Pohoata; Delia-Elena Diaconasu; Ioana Negru
  16. The Macroeconomic Effects of Different CBDC Regimes in an Economy with a Heterogeneous Household Sector By Magin, Jana; Neyer, Ulrike; Stempel, Daniel
  17. Natural Rate of Interest in a Small Open Economy with Application to CEE Countries By Maciej Stefański
  18. Retail prices during the 2014-2015 US dollar rally: a microscopic perspective using scanner data By Harms, Philipp; Beck, Günter; Hussain, Muzammil; Ruszel, Mark
  19. Does inflation matter? The influence of perceived price changes on well-being By Łukasz Below
  20. Supply chains shocks and inflation in Europe By Jakub Mućk; Łukasz Postek
  21. Uncertainty of Household Inflation Expectations: Reconciling Point and Density Forecasts By Yongchen Zhao
  22. Can selective price controls fight off inflation? Lessons from milk products in Croatia By Ivan Mužić; Ivan Žilić
  23. Macroprudential stance assessment: problems of measurement, literature review and some comments for the case of Croatia By Tihana Škrinjarić
  24. Cryptocurrency in the Aftermath: Unveiling the Impact of the SVB Collapse By Qin Wang; Guangsheng Yu; Shiping Chen

  1. By: Althanns, Markus; Gersbach, Hans
    JEL: E42 E50 E51 E52 E58 G21
    Date: 2023
  2. By: Ider, Gökhan; Kriwoluzky, Alexander; Kurcz, Frederik; Schumann, Ben
    JEL: C22 E31 E52 Q43
    Date: 2023
  3. By: Chafwehé, Boris; Oikonomou, Rigas; Priftis, Romanos; Vogel, Lukas
    JEL: E31 E52 E58 E62 C11
    Date: 2023
  4. By: Gornemann, Nils; Hildebrand, Sebastian; Kuester, Keith
    JEL: E31 E32 E52 F41 Q43
    Date: 2023
  5. By: Maciej Stefański
    Abstract: This paper estimates the financial market and macroeconomic effects of central bank asset purchases (quantitative easing, QE) in 16 economies which have launched asset purchases for the first time in response to the COVID-19 pandemic. We opt for regression-based methods rather than event studies, which enable us to estimate the effects of QE on government bond yields and stock prices over the first year of the pandemic rather than only at the time of the programme announcement. These estimates are inputted into Bayesian vector autoregressive models using Structural Scenario Analysis to obtain the effects on GDP and inflation. Contrary to most of the previous literature, we find that QE has a strong and robust impact on stock prices (raising them by 40% on average), but only a muted and on average neutral impact on bond yields. This translates into usually positive, but rather muted and often statistically insignificant impact on GDP of 0.4% on average and an insignificant impact on prices. Analysing the cross-country differences in the results we find that QE tends to be more effective in countries with more credible monetary and fiscal policies, which suggests that it is a useful tool primarily in advanced economies.
    Keywords: unconventional monetary policy, large-scale asset purchases, QE, GDP, inflation, stock prices, government bond yields, credibility, comparative study
    JEL: E52 E58
    Date: 2023–06
  6. By: Richard K. Crump; Marco Del Negro; Keshav Dogra; Pranay Gundam; Donggyu Lee; Ramya Nallamotu; Brian Pacula
    Abstract: This post uses the New York Fed DSGE model to ask the question: What would have happened to interest rates, output, and inflation had the Federal Reserve been following an average inflation targeting (AIT)-type reaction function since 2021:Q2, when inflation began to rise—as opposed to keeping the federal funds rate at the zero lower bound (ZLB) until March 2022, and then raising it aggressively thereafter? We show that actual policy was more accommodative in 2021 than implied by the AIT reaction function and then more contractionary in 2022 and beyond. On net, the lagged effect of monetary policy on the level of GDP, when measured relative to the counterfactual, has been positive throughout the forecast horizon, due to the initial boost associated with keeping the fed funds rate near zero in 2021.
    Keywords: Dynamic Stochastic General Equilibrium (DSGE) models; DSGE; lagged effects; forecasting; monetary policy; New York Fed
    JEL: E52
    Date: 2023–11–21
  7. By: Adame Espinosa Francisco
    Abstract: This work is based on a new Keynesian theoretical model for an advanced economy, which incorporates overlapping generations to analyze a channel through which fluctuations in household financial wealth influence aggregate demand. The optimal monetary policy, corresponding to that of a central planner maximizing households' welfare, aims to mitigate financial fluctuations while simultaneously reducing variability in inflation and the output gap. The model is calibrated for the United States and reproduces the effect of variations in the price of financial assets on aggregate demand. The results show, first, that in the presence of productivity, financial, and demand shocks, optimal monetary policy significantly improves aggregate welfare by stabilizing financial fluctuations that impact households' wealth. Secondly, in the face of productivity and financial shocks, an augmented monetary rule responding explicitly to fluctuations in the price of financial assets, in addition to inflation and output gaps, can reproduce the welfare achieved under optimal monetary policy. However, this is not the case for demand shocks.
    Keywords: Monetary Policy;Monetary Rules;Overlapping Generations
    JEL: E21 E44 E52 E58
    Date: 2023–11
  8. By: James Mitchell; Saeed Zaman
    Abstract: This paper examines the predictive relationship between the distribution of realized inflation in the US and measures of inflation expectations from households, firms, financial markets, and professional forecasters. To allow for nonlinearities in the predictive relationship we use quantile regression methods. We find that the ability of households to predict future inflation, relative to that of professionals, firms, and the market, increases with inflation. While professional forecasters are more accurate in the middle of the inflation density, households’ expectations are more useful in the upper tail. The predictive ability of measures of inflation expectations is greatest when combined. We show that it is helpful to let the combination weights on different agents’ expectations of inflation vary by quantile when assessing inflationary pressures probabilistically.
    Keywords: inflation expectations measures; inflation; density forecasts; quantile predictive regressions; non-Gaussian models; nonlinearities
    JEL: C15 C53 E3 E37
    Date: 2023–11–30
  9. By: Syngjoo Choi; Bongseob Kim; Young-Sik Kim; Ohik Kwon
    Abstract: Privacy protection is among the key features to consider in the design of central bank digital currency (CBDC). Using a nationally representative sample of over 3, 500 participants, we conduct a randomized online survey experiment to examine how the willingness to use CBDC as a means of payment varies with the degree of privacy protection and information provision on the privacy benefits of using CBDC. We find that both factors significantly increase participants' willingness to use CBDC by up to 60% when purchasing privacy-sensitive products. Our findings provide useful insights regarding the design and the public's adoption of CBDC.
    Keywords: central bank digital currency (CBDC), privacy, randomized online survey experiment
    JEL: E40 E50 C90
    Date: 2023–11
  10. By: Richard K. Crump; Marco Del Negro; Keshav Dogra; Pranay Gundam; Donggyu Lee; Ramya Nallamotu; Brian Pacula
    Abstract: Over the last few years, the U.S. economy has experienced unusually high inflation and an unprecedented pace of monetary policy tightening. While inflation has fallen recently, it remains above target, and the economy continues to expand at a robust pace. Does the resilience of the U.S. economy imply that monetary policy has been ineffectual? Or does it reflect that policy acts with “long and variable lags” and so we haven’t yet observed the full effect of the monetary tightening that has already taken place? Using a Bayesian vector autoregressive (BVAR) model, we show that economic activity has, indeed, been substantially stronger than would have been anticipated considering the rapid policy tightening. Still, the model expects a significant slowdown in 2024-25, even though short-term interest rates are forecasted to fall.
    Keywords: forecasts; lagged effects; monetary policy
    JEL: E2 E52
    Date: 2023–11–21
  11. By: Nuwat Nookhwun; Pym Manopimoke
    Abstract: This paper examines the role of sector-specific and common macroeconomic shocks towards explaining the dynamics of disaggregated price series and overall headline inflation in Thailand. Based on applying a Bayesian factor-augmented VAR model with zero and sign restrictions on a large dataset of macroeconomic and disaggregated price data, we identify domestic and global structural macroeconomic shocks and study their contributions to inflation volatility and dynamics. We find that sector-specific shocks account for over 80 percent of the variation in disaggregated price series. Common macroeconomic shocks, on the other hand, drive the majority of inflation dynamics at the aggregated level, in which most of these common shocks have origins that are global in nature. For Thailand, global demand and oil price shocks are the two main drivers of headline inflation, and transmit mainly through energy prices. We also find that the dominant role of global shocks helps explain the rather low persistence of Thai inflation movements, as they generate lower overall inflation persistence than domestically-oriented shocks.
    Keywords: Disaggregated prices; Inflation; Factor-augmented VAR; Sign restrictions; Monetary policy
    JEL: C32 E31 E37
    Date: 2023–12
  12. By: Mohammadreza Mahmoudi
    Abstract: This study investigates the influence of monetary policy and monetary policy uncertainties on Bitcoin returns, utilizing monthly data of BTC, and MPU from July 2010 to August 2023, and employing the Markov Switching Means VAR (MSM-VAR) method. The findings reveal that Bitcoin returns can be categorized into two distinct regimes: 1) regime 1 with low volatility, and 2) regime 2 with high volatility. In both regimes, an increase in MPU leads to a decline in Bitcoin returns: -0.028 in regime 1 and -0.44 in regime 2. This indicates that monetary policy uncertainty exerts a negative influence on Bitcoin returns during both downturns and upswings. Furthermore, the study explores Bitcoin's sensitivity to Federal Open Market Committee (FOMC) decisions.
    Date: 2023–10
  13. By: Julian di Giovanni; Ṣebnem Kalemli-Özcan; Alvaro Silva; Muhammed A. Yildirim
    Abstract: We estimate a multi-country, multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–23 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/EUR exchange rate. The quantification exercise yields four key findings. First, negative supply shocks to factors of production, labor and intermediate inputs, initially sparked inflation in 2020-21. Global supply chains and complementarities in production played an amplification role in this initial phase. Second, positive aggregate demand shocks, due to stimulative policies, widened demand-supply imbalances, amplifying inflation further during 2021-22. Third, the reallocation of consumption between goods and service sectors, a relative sector-level demand shock, played a role in transmitting these imbalances across countries through the global trade and production network. Fourth, global energy shocks have differential impacts on the U.S. relative to other countries’ inflation rates. Further, complementarities between energy and other inputs to production play a particularly important role in the quantitative impact of these shocks on inflation.
    Keywords: inflation; international spillovers; global production network
    JEL: E2 E3 E6 F1 F4
    Date: 2023–11–01
  14. By: Asongu, Simplice; Odhiambo, Nicholas
    Abstract: This study focuses on linkages between bank accounts and supply-side mobile money drivers for mobile money innovations. It seeks to understand how bank accounts can be complemented with mobile subscription and mobile connectivity dynamics (i.e., mobile connectivity coverage and mobile connectivity performance) for mobile money innovations. The empirical evidence is based on quadratic Tobit regressions. First, there are positive net relationships from the roles of mobile subscriptions and mobile connectivity coverage in modulating bank accounts for mobile money innovations. Second, mobile connectivity performance does not significantly modulate bank accounts for mobile money innovations. Third, given the negative marginal relationships associated with the positive net relationships, thresholds for complementary policies in mobile money supply factors that are worthwhile for bank accounts to stimulate mobile money innovations are provided. The thresholds are: (i) mobile subscription rates of 87.50%, 80.50%, and 98.50% of the adult population for respectively, the mobile money accounts, the mobile used to send money, and the mobile used to receive money, and (ii) mobile connectivity coverages of 64.00%, 69.33%, and 78.00% for respectively, the mobile money accounts, the mobile used to send money, and the mobile used to receive money.
    Keywords: Mobile money; technology diffusion; financial inclusion; inclusive innovation
    JEL: D1 D14 D31 D60 O30
    Date: 2022–01
  15. By: Ion Pohoata; Delia-Elena Diaconasu; Ioana Negru
    Abstract: This paper testifies to the fact that the independence of the Central Banks, as stated by its founding fathers, is nothing more than a chimera. We demonstrate that the hypothesis inflation is a purely monetary phenomenon does not support the plea for independence. Moreover, we show that the conservative central banker, the imaginary Principal-Agent contract, the alleged financial autonomy, just like the ban on budgetary financing, are all arguments that lack logic. We equally show that the idea of independence is not convincing because its operational toolbox, as well as the system of rules it relies on, lack well-defined outlines.
    Date: 2023–08
  16. By: Magin, Jana; Neyer, Ulrike; Stempel, Daniel
    JEL: E52 E42 E58 E41 E51
    Date: 2023
  17. By: Maciej Stefański
    Abstract: This paper extends the Laubach-Williams (2003) framework, which is widely used to estimate the natural rate of interest, to make it more suitable for studying small open economies. The model is augmented with consumer inflation expectations, foreign output gap, the exchange rate, energy prices and a lending spread. It also uses survey data to improve the accuracy of output gap and potential growth estimates. This model is subsequently applied to CEE countries (Poland, Czechia and Hungary) and the euro area. The natural interest rate is found to be relatively volatile and pro-cyclical; it fell following the global financial crisis, but rebounded in recent years; however, while it remains lower than before the crisis, it is positive for all analysed economies. The model gives more precise and robust estimates than the standard Laubach-Williams framework, but ex-post revisions remain substantial.
    Keywords: natural interest rate, small open economy, CEE, Kalman filter
    JEL: E43 E52 C32
    Date: 2023–09
  18. By: Harms, Philipp; Beck, Günter; Hussain, Muzammil; Ruszel, Mark
    JEL: E31 F31 F41 L81
    Date: 2023
  19. By: Łukasz Below
    Abstract: I confirm the foregoing state of the art for inflation and well-being correlation while filling the gap in the literature and estimating the effects of individuals' inflation perception on well-being. I also discover the significant heterogeneity in attitudes toward inflation, inflation perception, and unemployment among European countries. Inflation measured by official statistics, as well as inflation perceived by consumers, has a significant negative influence on people's well-being. The relation was confirmed by regressing reported life satisfaction on a wide set of individual characteristics, as well as macroeconomic variables. While the inflation perception influence on well-being in Eastern Europe is higher than the influence of HICP, for Western Europe, it is the opposite. Both country groups also differ in terms of the marginal rate of substitution between inflation and unemployment – the effects of higher unemployment are more severe in comparison to the influence of inflation in Western Europe.
    Keywords: inflation, happiness, unemployment, well-being
    JEL: D60 E31 E5 E7 I31
    Date: 2023–03
  20. By: Jakub Mućk; Łukasz Postek
    Abstract: This article quantifies the effects of supply chains disruptions on inflation in European economies. We apply the local projections method in a panel framework and estimate responses of nine measures of consumer and producer inflation to shortages in materials and equipment reported by enterprises in the business surveys conducted by the European Commission. We find that supply chains disruptions are proinflationary for all considered measures of inflation, and a larger effect can be observed for inflation of prices of goods rather than services. The peak of impulse responses can be observed 4-6 quarters after shock, while the effect usually dies out after 8-12 quarters. The forecast error variance decomposition (FEVD) suggests that supply chain disruptions are much more important in explaining inflation changes at medium- rather than short-run forecast horizon. Moreover, supply chain shocks seem to matter relatively more for the variance of inflation of consumer prices of goods than for other measures of inflation. Interestingly, the positive estimates of the impact of supply chains disruptions on inflation can be related mainly to the period corresponding with the COVID-19 pandemics as well as the full-scale invasion of Ukraine and may exhibit asymmetric or regime-switching nature.
    Keywords: supply chains shock, inflation, local projections, panel data
    JEL: E31 E32 F41 C33
    Date: 2023–09
  21. By: Yongchen Zhao (Department of Economics, Towson University)
    Abstract: We examine the uncertainty of household inflation expectations using matched point and density forecasts from the New York Fed’s Survey of Consumer Expectations. We argue that using in- formation from both types of forecasts allows for better estimates of uncertainty. Since the two types of forecasts may be inconsistent, we propose to reconcile them by matching the mean (or the median) of individual density forecasts and the corresponding point forecasts using exponential tilting. The reconciled densities provide uncertainty measures that are strictly consistent with the point forecasts by construction. We compare the uncertainty of inflation expectations derived from the reconciled densities with that derived from the original densities. Our results suggest that, at the micro-level, the uncertainty of consistent forecasts tends to be lower after reconciliation, while that of inconsistent forecasts tends to be higher. Aggregate uncertainty measured by averaging individual uncertainty is likely underestimated when using the survey responses directly, without reconciliation. This study contributes to the literature on the measurement of uncertainty and provides insights into the interplay of matched point and density forecasts in this context.
    Keywords: Uncertainty measurement, Exponential tilting, Household survey, Consumer sentiment.
    JEL: C53 E31 D12 C83 D84
    Date: 2023–12
  22. By: Ivan Mužić (Croatian National Bank, Croatia); Ivan Žilić (Croatian National Bank, Croatia)
    Abstract: In this paper, we analyze the effects of a price control program designed to mitigate the inflation burden for households. In particular, as a part of a larger relief package, in September 2022 the Croatian government lowered and fixed the price of essential food products, including long-term milk. While selective price controls on food products have a social dimension, setting the price ceiling too low might lead to shortages and a decrease in consumer welfare. Applying a difference-in-difference identification strategy and using weekly data on milk availability and pricing across a number of stores in Croatia, Slovenia, and Bosnia and Herzegovina, we estimate the causal effects of the price-ceiling policy. We find that the regulated milk was around 35% cheaper than it would have been if there was no program, and we find no adverse effect on the regulated milk availability. We document that the price of substitutes (other types of milk) did not increase, but we do record an increase in the availability of close substitutes of the regulated milk type. While our back-of-the-envelope calculation indicates that the effect of milk price ceilings on overall inflation is negligible, we show that this inflation-soothing effect is more prominent for poorer households.
    Keywords: inflation, price controls, availability, substitution
    JEL: E31 G50 E64
    Date: 2023–11–08
  23. By: Tihana Škrinjarić (Bank of England, United Kingdom)
    Abstract: This paper contributes to the literature on macroprudential stance assessment in two ways. Firstly, it gives a comprehensive review of related literature to see the current directions research and policy practice, alongside the problems. Secondly, it empirically evaluates different aspects and issues when assessing the macroprudential stance. The empirical part of the paper focuses on country that has a fairly active macroprudential policy to establish the initial framework for assessing the effectiveness of macroprudential policy in Croatia. Results show that somewhat different results could be obtained based on variable definition and selection. This means that measuring macroprudential stance is difficult, as it depends on the definition of the macroprudential policy variable, selection of other important variables in the analysis, as well as other methodological factors.
    Keywords: systemic risk, macroprudential policy, financial stability, financial conditions, quantile regression, policy assessment, macroprudential stance, Q-VAR, growth at risk
    JEL: E32 E44 E58 G01 G28 C22
    Date: 2023–11–08
  24. By: Qin Wang; Guangsheng Yu; Shiping Chen
    Abstract: In this paper, we explore the aftermath of the Silicon Valley Bank (SVB) collapse, with a particular focus on its impact on crypto markets. We conduct a multi-dimensional investigation, which includes a factual summary, analysis of user sentiment, and examination of market performance. Based on such efforts, we uncover a somewhat counterintuitive finding: the SVB collapse did not lead to the destruction of cryptocurrencies; instead, they displayed resilience.
    Date: 2023–09

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