nep-mon New Economics Papers
on Monetary Economics
Issue of 2024‒02‒12
thirty-one papers chosen by
Bernd Hayo, Philipps-Universität Marburg

  1. Central bank digital currency: when price and bank stability collide By Fernández-Villaverde, Jesús; Schilling, Linda; Uhlig, Harald
  2. Transmission of monetary policy: Bank interest rate pass-through in Ireland and the euro area By Byrne, David; Foster, Sorcha
  3. Central Bank Independence at Low Interest Rates By Benjamín García; Arsenios Skaperdas
  4. Monetary Policy across Inflation Regimes By Valeria Gargiulo; Christian Matthes; Katerina Petrova
  5. Analysis of the Impact of Central bank Digital Currency on the Demand for Transactional Currency By Ruimin Song; Tiantian Zhao; Chunhui Zhou
  6. Firm heterogeneity, capital misallocation and optimal monetary policy By González, Beatriz; Nuño, Galo; Thaler, Dominik; Albrizio, Silvia
  7. Money Market Fund Repo and the ON RRP Facility By Samuel J. Hempel; Calvin Isley; R. Jay Kahn; Patrick E. McCabe
  8. Economics of Fiscal Dominance and Ramifications for the Discharge of Effective Monetary Policy Transmission By Jackson, Emerson Abraham
  9. Granular shocks to corporate leverage and the macroeconomic transmission of monetary policy By Holm-Hadulla, Fédéric; Thürwächter, Claire
  10. Shocks, Frictions, and Policy Regimes: Understanding Inflation after the COVID-19 Pandemic By Taeyoung Doh; Choongryul Yang
  11. The Interaction between Macroprudential and Monetary Policies and the Housing Market – A VAR Examination for Israel By Sigal Ribon
  12. What Explains Global Inflation By ha, jongrim; Kose, Ayhan M.; Ohnsorge, Franziska; Yilmazkuday, Hakan
  13. Money is the roof of asset bubbles By Makoto WATANABE; Yu Awaya; kohei Iwasaki
  14. Supply and Demand Determinants of Inflation in Ireland By McLaughlin, Darragh; Conefrey, Thomas
  15. Testing the Validity of the Inflation-Unemployment Nexus within the West African Monetary Zone By Effiong, Ubong Edem; Akpan, Ekomabasi; Ekpe, John Polycarp
  16. Speeches in the Green: The Political Discourse of Green Central Banking By Martin Feldkircher; Viktoriya Teliha
  17. Pass-Through of Shocks into Different U.S. Prices By Hakan Yilmazkuday
  18. Balancing Growth and Inflation Targets with Monetary Policy By PIDE
  19. Saving for sunny days: The impact of climate (change) on consumer prices in the euro area By Paulo M. M. Rodrigues; Mirjam Salish; Nazarii Salish
  20. Inflation and Labour Markets in the Wake of the Pandemic: The Case of Chile By Pablo García
  21. 21st Century Accelerated Dedollarization, Multipolarity and The Global South Beyond Modern Money Theory: Governance of a Complex Global Financial System in the Age of Global Instabilities By Khan, Haider
  22. On the Impact of Oil Prices on Sectoral Inflation: Evidence from World's Top Oil Exporters and Importers By Salem, Leila Ben; Nouira, Ridha; Rault, Christophe
  23. Is Post-pandemic Wage Growth Fueling Inflation? By Philippe Andrade; Falk Bräuning; José Fillat; Gustavo Joaquim
  24. The Theory of Reserve Accumulation, Revisited By Giancarlo Corsetti; Seung Hyun Maeng
  25. The effects of sanctions on Russian banks in TARGET2 transactions data By Drott, Constantin; Goldbach, Stefan; Nitsch, Volker
  26. Do Machine Learning Approaches Have the Same Accuracy in Forecasting Cryptocurrencies Volatilities? By Brahmana, Rayenda Khresna
  27. Commentary On the IMF Standby Arrangement with Pakistan-2023 By PIDE
  28. Input price dispersion across buyers and misallocation By Ariel Burstein; Javier Cravino; Marco Rojas
  29. Digital Mobility of Financial Capital Across Different Time Zones, Factor Prices and Sectoral Composition By Mandal, Biswajit
  30. Bank Capital Regulation in a Zero Interest Environment By Döttling, Robin
  31. The 2013 Cypriot banking crisis and blame attribution: survey evidence from the first application of a bail-in in the Eurozone By Poullikka, Agni

  1. By: Fernández-Villaverde, Jesús; Schilling, Linda; Uhlig, Harald
    Abstract: This paper shows the existence of a central bank trilemma. When a central bank is involved in financial intermediation, either directly through a central bank digital currency (CBDC) or indirectly through other policy instruments, it can only achieve at most two of three objectives: a socially eÿcient allocation, financial stability (i.e., absence of runs), and price stability. In particular, a commitment to price stability can cause a run on the central bank. Implementation of the socially optimal allocation requires a commitment to inflation. We illustrate this idea through a nominal version of the Diamond and Dybvig (1983) model. Our perspective may be particularly appropriate when CBDCs are introduced on a wide scale. JEL Classification: E58, G21
    Keywords: bank runs, CBDC, central bank digital currency, currency crises, financial intermediation, inflation targeting, monetary policy, spending runs
    Date: 2024–01
  2. By: Byrne, David (Central Bank of Ireland); Foster, Sorcha (Central Bank of Ireland)
    Abstract: The pace of current monetary policy tightening has been unprecedented in the history of the Eurosystem. The key ECB interest rates started to increase in July 2022, the first rate rise in 11 years, and have increased sharply by 425 basis points since then. Monetary policy operates with long and variable lags, meaning these increases will take time to affect inflation. However, the first phase of transmission can already be seen in financial conditions, in particular in loan and deposit pricing by banks. In this Letter, we examine how banks’ interest rates have responded to changes in the ECB’s monetary policy rates. We address two key questions regarding this aspect of monetary policy “pass-through” in the euro area and Ireland. First, is there evidence that pass-through is different in this tightening cycle? Second, does pass-through in Ireland differ from other euro area countries? Based on our historical comparisons, we find that pass-through in the euro area is weaker now relative to previous cycles for some deposit products, stronger for new business lending and business term deposits, and the same for mortgages and outstanding business loans. For Ireland, we find evidence that, in this cycle, pass-through to new mortgage rates and to household overnight deposits, which represent the majority of Irish deposits, has been weaker than in other euro area countries.
    Date: 2023–09
  3. By: Benjamín García; Arsenios Skaperdas
    Abstract: We create a new measure of the political pressure faced by the Federal Reserve based on the analysis of transcripts of the Chairs’ testimonies to Congress. We find that the use of non-traditional policies at low interest rates led to increased political criticism and that criticism predicts legislative actions that threaten central bank independence. We develop a model where the probability of the monetary authority’s future loss of independence is increasing in the use of non-traditional instruments, leading to attenuated monetary responses and higher inflation volatility. We show that this attenuation can be mitigated under an institutional framework with clearly defined targets where the central bank is evaluated by how efficiently it achieves its goals.
    Date: 2024–01
  4. By: Valeria Gargiulo; Christian Matthes; Katerina Petrova
    Abstract: Does the effect of monetary policy depend on the prevailing level of inflation? In order to answer this question, we construct a parsimonious nonlinear time series model that allows for inflation regimes. We find that the effects of monetary policy are markedly different when year-over-year inflation exceeds 5.5 percent. Below this threshold, changes in monetary policy have a short-lived effect on prices, but no effect on the unemployment rate, giving a potential explanation for the recent “soft landing” in the United States. Above this threshold, the effects of monetary policy surprises on both inflation and unemployment can be larger and longer lasting.
    Keywords: monetary policy; shocks; inflation; regime-dependence; outliers; nonlinear time series models
    JEL: C11 C12 C22
    Date: 2024–01–01
  5. By: Ruimin Song; Tiantian Zhao; Chunhui Zhou
    Abstract: This paper takes the development of Central bank digital currencies as a perspective, introduces it into the Baumol-Tobin money demand theoretical framework, establishes the transactional money demand model under Central bank Digital Currency, and qualitatively analyzes the influence mechanism of Central bank digital currencies on transactional money demand; meanwhile, quarterly data from 2010-2022 are selected to test the relationship between Central bank digital currencies and transactional money demand through the ARDL model. The long-run equilibrium and short-run dynamics between the demand for Central bank digital currencies and transactional currency are examined by ARDL model. The empirical results show that the issuance and circulation of Central bank digital currencies will reduce the demand for transactional money. Based on the theoretical analysis and empirical test, this paper proposes that China should explore a more effective Currency policy in the context of Central bank digital currencies while promoting the development of Central bank digital currencies in a prudent manner in the future.
    Date: 2024–01
  6. By: González, Beatriz; Nuño, Galo; Thaler, Dominik; Albrizio, Silvia
    Abstract: This paper analyzes the link between monetary policy and capital misallocation in a New Keynesian model with heterogeneous firms and financial frictions. In the model, firms with a high return to capital increase their investment more strongly in response to a monetary policy expansion, thus reducing misallocation. This feature creates a new time-inconsistent incentive for the central bank to engineer an unexpected monetary expansion to temporarily reduce misallocation. However, price stability is the optimal timeless response to demand, financial or TFP shocks. Finally, we present firm-level evidence supporting the theoretical mechanism. JEL Classification: E12, E22, E43, E52, L11
    Keywords: capital misallocation, financial frictions, firm heterogeneity, monetary policy
    Date: 2024–01
  7. By: Samuel J. Hempel; Calvin Isley; R. Jay Kahn; Patrick E. McCabe
    Abstract: Between January 2021 and June 2022, money market funds' (MMFs') investments in the Federal Reserve's Overnight Reverse Repurchase (ON RRP) facility rose by $2 trillion, while their private repo lending fell by almost $500 billion. These sizable shifts give us an opportunity to examine how monetary policy implementation and the ON RRP facility interact with the private repo market.
    Date: 2023–12–15
  8. By: Jackson, Emerson Abraham
    Abstract: This paper explores the intricate dynamics of fiscal dominance and its profound implications for monetary policy efficacy, contributing to the discourse on the interplay between fiscal and monetary policies. The theoretical foundation critically examines existing literature, integrating empirical evidence to construct a comprehensive understanding. Model blocks strategically elucidate the significance of fiscal variables in shaping monetary transmission mechanisms. The ensuing analysis scrutinises the disruptive potential of fiscal dominance on conventional monetary policy tools. The conclusion navigates policy recommendations, emphasising the necessity of coordinated fiscal-monetary strategies to effectively mitigate inflationary pressures. This research provides a nuanced perspective for policymakers, offering theoretical depth and empirical insights to guide decisions in addressing the complex challenges posed by fiscal dominance in economic governance.
    Keywords: Fiscal Dominance, Monetary policy, Inflationary Pressures, Economic Growth
    JEL: E31 H62
    Date: 2024
  9. By: Holm-Hadulla, Fédéric; Thürwächter, Claire
    Abstract: We study how shocks to corporate leverage alter the macroeconomic transmission of monetary policy. We identify leverage shocks as idiosyncratic firm-level disturbances that are aggregated up to a size-weighted country-level average to generate a Granular Instrumental Variable (Gabaix and Koijen, forthcoming). Interacting this instrumental variable with high-frequency identified monetary policy shocks, we find that transmission to the price level strengthens in the presence of leverage shocks, while the real effects of monetary policy are unaffected. We show that this disconnect can be rationalized with an internal devaluationchannel. Economies experiencing an increase in leverage exhibit a stronger monetary policy-induced contraction in domestic demand. This, however, is counteracted by a weaker contraction in exports, facilitated by their improved price competitiveness. JEL Classification: C36, E22, E52
    Keywords: corporate leverage, granular instrumental variable, micro-to-macro analysis, monetary policy transmission
    Date: 2024–01
  10. By: Taeyoung Doh; Choongryul Yang
    Abstract: We set- up a two-sector New Keynesian model with input-output linkages to study the persistently high inflation during the post-COVID-19 period. We include multiple shocks as well as several amplification channels of these shocks in a parsimonious model to quantify the relative importance of each factor. We calibrate the model to match the pre-COVID-19 data and alter parameters governing 1) the fiscal rule, 2) inflation feedback in the monetary policy rule, 3) elasticity of substitution among intermediary inputs in production, and 4) the size of a sectoral demand shift shock to explain the post-COVID-19 data. We obtain estimates of shocks in the model to fit goods inflation data during the post-COVID-19 period and use aggregate inflation to test the model’s ability to explain the recent inflationary episode. Although aggregate demand shocks and a sectoral demand shift shock have played a significant role in the initial inflation surge during 2021, the propagation of these shocks into the persistently high aggregate inflation was also helped by lower inflation feedback in the monetary policy response relative to the pre-COVID-19 period. Compared with other changes in parameters, this alteration of the monetary policy rule best fits the level and persistence of the post-COVID-19 aggregate inflation. While lowering the elasticity of substitution among intermediary inputs can match the level of inflation, it does a poorer job of explaining the persistence of inflation compared with allowing changes in the monetary policy rule.
    Keywords: inflation persistence; COVID-19; sectoral reallocation; inflation feedback; production friction
    JEL: E62 E63
    Date: 2023–12–22
  11. By: Sigal Ribon (Bank of Israel)
    Abstract: We examine the interaction between housing-market macroprudential (MaP) measures, monetary policy, and housing market dynamics in Israel. Using a structural VAR, we show that monetary policy and MaP policy react to positive shocks to house prices and to the volume of transactions in the housing market, acting as complementary policies, but do not react to changes in the levels of mortgage debt. We find that MaP measures are tigghtened in response to negative (accomodative) monetary policy shocks, offsetting their effect, while monetary policy only weakly reacts to shocks to MaP measures. Similar to the findings in previous research, contractionary monetary policy and MaP measures tend to mitigate the increase in house prices. Transaction volume declines in response to monetary tightening, and is also reduced in response to MaP measures, after a temporary increase. While monetary policy does not significantly change housing debt, MaP measures do have a mitigating effect on debt after a few periods. Our results are robust to alternative specifications.
    Date: 2023–07
  12. By: ha, jongrim; Kose, Ayhan M.; Ohnsorge, Franziska; Yilmazkuday, Hakan
    Abstract: This paper examines the drivers of fluctuations in global inflation, defined as a common factor across monthly headline consumer price index (CPI) inflation in G7 countries, over the past half-century. We estimate a Factor-Augmented Vector Autoregression model where a wide range of shocks, including global demand, supply, oil price, and interest rate shocks, are identified through narrative sign restrictions motivated by the predictions of a simple dynamic general equilibrium model. We report three main results. First, oil price shocks followed by global demand shocks explained the lion’s share of variation in global inflation. Second, the contribution of global demand and oil price shocks increased over time, from 56 percent during 1970-1985 to 65 percent during 2001-2022, whereas the importance of global supply shocks declined. Since the pandemic, global demand and oil price shocks have accounted for most of the variation in global inflation. Finally, oil price shocks played a much smaller role in global core CPI inflation variation, for which global supply shocks were the main source of variation. These results are robust to various sensitivity exercises, including alternative definitions of global variables, different samples of countries, and additional narrative restrictions.
    Keywords: Oil prices; demand shocks; supply shocks; interest rate shocks
    JEL: E31 E32 Q43
    Date: 2023–12–19
  13. By: Makoto WATANABE; Yu Awaya; kohei Iwasaki
    Abstract: This paper examines how monetary expansion causes asset bubbles. Whenthere is no monetary expansion, a bubbly asset is not created due to a hold-upproblem. Monetary expansion increases buyers money holdings, and then, dealersare willing to buy a worthless asset from sellers, in hopes of selling it to buyers
    Date: 2024–01
  14. By: McLaughlin, Darragh (Central Bank of Ireland); Conefrey, Thomas (Central Bank of Ireland)
    Abstract: To what extent can the basics of supply and demand help to explain the high rates of inflation in Ireland since 2021?In this Letter, we analyse the data using a simple model-based approach and find that, on average, supply-side drivers explain around three fifths of inflation in the year to May 2023, while demandside factors account for over one third of inflation. The decline in headline inflation since Q3 2022 has been mostly driven by an easing of supply-side inflationary pressures. The contribution of demand to core inflation appears to have faded over the last 12 months. Nevertheless, demand has become a more important driver of services inflation recently – consistent with signs of stronger domestic inflationary pressures.
    Date: 2023–09
  15. By: Effiong, Ubong Edem; Akpan, Ekomabasi; Ekpe, John Polycarp
    Abstract: This study aimed to ascertain the validity of the Phillips Curve in six countries of Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone within the West African Monetary Zone (WAMZ). The study utilised panel data from these countries varying from 2000 to 2021, which were obtained from the World Bank database. The data were analysed using the Panel unit root test, Johansen Fisher Panel (JFP) co-integration test, Pairwise Dumitrescu Hurlin Panel (PDHP) Causality Tests, and the Panel Autoregressive Distributed Lag (ARDL) approach. The PDHP Causality Test revealed a one-way causality from unemployment to inflation; hence, unemployment causes inflation. The JFP co-integration test conducted since the variables were not all stationary at levels revealed that the two variables are cointegrated, which portrayed some degree of long-run relationship. The significant findings of this study, as presented by the panel ARDL result, indicated that the inverse relationship between inflation and unemployment is only valid in the short run within the WAMZ. This finding supports the argument that there is no trade-off between inflation and unemployment in the long run and the Phillips Curve is a vertical line at the natural unemployment rate.
    Keywords: Phillips Curve; Natural Rate of Unemployment; Inflation; Monetary Policy; Labour Market.
    JEL: E24 E31 E52
    Date: 2022–07–07
  16. By: Martin Feldkircher; Viktoriya Teliha
    Abstract: In this paper, we employ a keyword-assisted topic model to quantify the extent of climate-related communication of central banks. We find evidence for a significant increase in climate-related speeches by central banks, which address the topic mostly in parallel with topics on financial stability, payment innovations, and the banking sector. Price stability concerns play a minor role. Finally, we examine factors that can explain the extent of green communication by central banks. Controlling for macroeconomic and climate-related variables, we identify two external factors that can prompt central banks to prioritize climate research on their agenda: First, peer pressure, measured by membership of a working group on green financing, increases green communication. Second, a high degree of governmental climate engagement, reflected by the extent of national climate laws, is positively related to green communication by central banks. Whether the central bank has an implicit or explicit sustainability mandate, however, does not explain the extent of green communication.
    Keywords: central banking, climate change, narrative analysis, topic modelling
    JEL: E58 E61
    Date: 2024–01
  17. By: Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper estimates the pass-through of different shocks into different U.S. prices that are important for policy makers. The investigation is based on a structural vector autoregression model, where quarterly data are used. The empirical results depict oil price pass-through, exchange rate pass-through, import-price pass-through, and producer price pass-through into import prices, producer prices, and consumer prices for the U.S. economy. Policy implications suggest that achieving and sustaining consumer price stability highly depend on monitoring the developments in oil prices, followed by import prices and producer prices.
    Keywords: Pass-Through, Oil Prices, Exchange Rates, Import Prices, Producer Prices, Consumer Prices
    JEL: E31 F31 Q43
    Date: 2024–01
  18. By: PIDE (Pakistan Institute of Development Economics)
    Abstract: The Monetary Policy Statement (MPS) by the State Bank of Pakistan (SBP), dated June 12, 2023, reflects the ongoing efforts to manage inflation and promote economic growth. The MacroPolicy Lab at the Pakistan Institute of Development Economics (PIDE) has critically reviewed the MPS and offers valuable insights to policymakers. This policy note highlights the relationship between inflation and interest rates, analyzes the rationale behind the SBP’s monetary policy decisions, and discusses the challenges of balancing growth and inflation targets in the current economic landscape.
    Date: 2023
  19. By: Paulo M. M. Rodrigues; Mirjam Salish; Nazarii Salish
    Abstract: Climate (change) affects the prices of goods and services in different countries or regions differently. Simply relying on aggregate measures or summary statistics, such as the impact of average country temperature changes on HICP headline inflation, conceals a large heterogeneity across (sub-)sectors of the economy. Additionally, the impact of a weather anomaly on consumer prices depends not only on its sign and magnitude, but also on its location and the size of the area affected by the shock. This is especially true for larger countries or regions with diverse climate zones, since the geographical distribution of climatic effects plays a role in shaping economic outcomes. Using time series data of geolocations, we demonstrate that relying solely on country averages fails to adequately capture and explain the influence of weather on consumer prices in the euro area. We conclude that the information content hidden in rich and complex surface data can provide valuable insights into the role of weather and climate variables for price stability, and more generally may help to inform economic policy.
    Date: 2024–01
  20. By: Pablo García
    Date: 2023–04
  21. By: Khan, Haider
    Abstract: I argue that there is a need to create monetary sovereignty for the global south and generate adequate ex ante public investment for full employment. The governments should also be employers of the last resort. Since all existing accumulated evidence since the 2008-9 crisis indicates that we are not near the inflationary barrier, appropriate full employment generating government spending for public investment is a sensible functional finance option. For this to apply to the global south with any plausibility, first an appropriate global financial architecture must be created.This paper analyzes the problems of creating and expanding national macroeconomic policy space and economic governance for the global system which takes historical unevenness seriously and places both the developed and developing countries in the global system within a complex adaptive systems framework . With the recent developments towards the further expansion of BRICS-plus already achieved, accelerated dedollarization and assertion of sovereignty by many countries of the Global South, the creation of an alternative less asymmetric non-IMF based architecture for global financial governance has become a more realistic institutional possibility.
    Keywords: Multipolarity, The Global South, BRICS-plus, Accelerated Dedollarization, Modern Money Theory(MMT), Functional Finance in the Global South, dynamic complex adaptive economic systems, financial crises, global financial architecture, regional financial architectures, a hybrid GFA, regional cooperation, BASEL III reforms, the BIS proposals, Asia, BRICS Development Bank, BRICS financial facility, the IMF.
    JEL: E5 F5 F54
    Date: 2024–01–02
  22. By: Salem, Leila Ben (University of Sousse); Nouira, Ridha (University of Sousse); Rault, Christophe (University of Orléans)
    Abstract: This paper investigates the impact of oil price variations on sectoral inflation for a sample of 10 top oil importing and exporting countries. Specifically, we analyze the effects of oil prices on the consumer price index using monthly data spanning the July 2009 to February 2021 period. Two nonlinear techniques are used to this end: The nonlinear autoregressive distributed lag approach (NARDL), and the Hansen's model (2000). Our econometric results first indicate that the effect of oil price on inflation tends to change across sectors and countries. Second, the inflationary effects of variations in oil prices are likely to affect the energy sector, such as transport and equipment, which are the most dependent on oil. Third, the effect of oil price exists for all countries, but it is stronger in oil-importing than in oil-exporting ones. Besides, the country most sensitive to the oil price level is China.
    Keywords: oil-importing countries, panel threshold model, NARDL, sectoral inflation, oil price, oil-exporting countries
    JEL: C5 Q4 Q43
    Date: 2024–01
  23. By: Philippe Andrade; Falk Bräuning; José Fillat; Gustavo Joaquim
    Abstract: Inflation in the United States surged after the onset of the COVID-19 pandemic, reaching levels not seen in four decades. Supply chain disruptions, extraordinary fiscal support for households, labor market shortages, and lockdowns and other public health measures contributed to this surge, which first manifested as goods price inflation. Nominal wage growth also increased significantly and has remained at levels above pre-pandemic averages, raising concerns that it could trigger a wage-price spiral and extend the current episode of high inflation. Indeed, the increase in wage growth has coincided with an increase in service inflation, which is known to be more persistent than goods inflation and to account for a majority of overall inflation.
    Keywords: COVID-19; inflation; wage growth
    JEL: E24 E31
    Date: 2024–01–16
  24. By: Giancarlo Corsetti; Seung Hyun Maeng
    Abstract: Discretionary governments may choose to default on their liabilities after issuing new debt, creatingintra-period uncertainty that may raise borrowing costs in a self-fulfilling manner. We show that, toeliminate this disruptive prospect, governments optimally build up reserves to ensure post-auctionrepayment in all circumstances. Intra-period risk naturally provides the foundations for a theory ofreserve accumulation. Optimal reserve policy shields the economy from disruptive (off-equilibrium)risk, substantially containing the costs and size of precautionary debt over-issuance. The modelexplains why governments hold large amounts of reserves and appear reluctant to use them facingfundamental shocks.
    Keywords: Sovereign default, Foreign reserves, Self-fulfilling crises, Expectations, Discretionary Fiscal Policy, Debt sustainability
    Date: 2023–09
  25. By: Drott, Constantin; Goldbach, Stefan; Nitsch, Volker
    Abstract: This paper examines the effect of financial sanctions at the most disaggregated level possible, individual bank accounts. Using data from the Eurosystem's real-time gross settlement system TARGET2, we provide empirical evidence that sanctions imposed by the European Union on Russian banks following Russia's aggression against Ukraine in 2014 and 2022 have sizably reduced financial transactions with sanctioned Russian bank accounts, both along the extensive and intensive margins. Among the various sanction measures taken, exclusion from SWIFT, a global provider of secure financial messaging services, turns out to have the largest effects.
    Keywords: financial flows, transactions, restrictions
    JEL: F38 F51 G28
    Date: 2024
  26. By: Brahmana, Rayenda Khresna
    Abstract: The emergence of cryptocurrencies as digital investments drives scholars to explore their predictive prices. Intriguingly, most research focuses on its price and returns prediction using various models, leaving out the importance of persistent risk for portfolio management. This is not to mention that most research focuses only on Bitcoin, neglecting other altcoins and stablecoins. Therefore, this study comprehensively examines the cryptocurrency investment’s persistent risk from the forecasting point of view. We focus on comparing the best forecasting methods because they are vital for volatility-targeting and risk-parity in portfolio strategy. Four time-series model performances will be compared to select a suitable volatility prediction model: Machine Learning-Based GARCH, Machine Learning-Based SVR-GARCH, Neural Network, and Deep Learning. Using six different cryptocurrencies proxies: Bitcoin, Ethereum, Ripple, USD Coin, Tether, and Binance Coin, we found that ML-Based SVR-GARCH outperformed the peers in volatility forecasting. However, the prediction accuracy differences among all models are not significant. Finally, our paper provides new insights into machine learning methods’ applications in cryptocurrency market volatility prediction, which is helpful for academics, policy-makers, and investors in forming portfolio strategies.
    Keywords: Volatility Forecasting; Cryptocurrencies; Bitcoin; SVR-GARCH; Neural Network; Deep Learning
    JEL: C53 G17 G32
    Date: 2022–12–01
  27. By: PIDE (Pakistan Institute of Development Economics)
    Abstract: The International Monetary Fund (IMF) executive board has recently approved a 9-month Standby Agreement (SBA) of about USD 3 billion to support Pakistan’s economy. The primary objective of this agreement is to support stabilization of the economy by guarding it against the external shocks and difficult internal situation (i.e., devastating floods and inflation), and to accelerate structural reforms. The SBA serves as a pit stop for policy correction and immediate reform initiation, thus paving the way for negotiations on an Extended Fund Facility (EFF) in the future.
    Date: 2023
  28. By: Ariel Burstein; Javier Cravino; Marco Rojas
    Abstract: We leverage a comprehensive dataset of electronic invoices from Chilean firms to document new facts on price dispersion across buyers of the same manufactured intermediate goods. Over half of firm-tofirm sales in manufacturing are accounted for by products that are purchased by more than one buyer in a given month, with prices ranging by 40 percentage points across buyers for the average product. Price dispersion is pervasive across all manufacturing sectors. Observable characteristics of products and of buyer-seller pairs (including distance, mode of payment, and size of the parties and of the transaction) explain only a small fraction of the variance of price gaps in the data. We use a workhorse model of production networks to quantify the productivity gains from eliminating markup dispersion across buyers of individual products, inferring initial differences in markups from observed price gaps. The increase in aggregate productivity relative to the sales share of treated multi-buyer firms ranges from 2 to 7 percent, depending on the calibration of elasticities of substitution. The gains from eliminating markup dispersion across buyers are as large as those of eliminating markup dispersion across products.
    Date: 2024–01
  29. By: Mandal, Biswajit
    Abstract: In this paper I make an effort to formalize the possibility of transfer of financial capital across time zones to exploit the benefit of day night mismatch between two countries. The major precondition for such transaction is the completion of production, buying and selling of the product in twelve hours day-time of any calendar date. And the process of monetary transaction must be done through digital platform. In this backdrop I argue that exploration of such possibility reduces the effective cost of capital in the sector which is potentially timezone difference exploitative. Subsequently we find other factor price effects and sectoral composition changes in a very conventional Heckscher-Ohlin nugget kind of structure. Though the results are not very surprising, the mechanism through which it works is very unconventional. Without any traditional channels like trade, FDI, technology transfer, endowment changes I generate price effect due to digital mode of payment and twelve hours of activity.
    Keywords: Time Zone Differences, Service Trade, Financial Capital, Outsourcing
    JEL: F12 F16 F21
    Date: 2024
  30. By: Döttling, Robin
    Abstract: How does the zero lower bound on deposit rates (ZLB) affect how banks respond to capital regulation? I study this question in a model in which households value the liquidity services of deposits yet do not accept negative deposit rates. When deposit rates are constrained by the ZLB, tight capital requirements disproportionately hurt franchise values and are therefore less effective in curbing excessive risk taking. The model delivers a novel rationale for "interest-dependent" capital regulation that is optimally laxer when the ZLB binds and tighter when the ZLB is slack but may bind in the future.
    Date: 2023–12–19
  31. By: Poullikka, Agni
    Abstract: The policy responses to the Eurozone crisis were mainly driven by taxpayer funded bailouts and austerity packages, with the exception of Cyprus where a bail-out was supplemented with a bank bail-in for the first time in the Eurozone. This paper examines how voters assign blame for the 2013 Cypriot banking crisis. The results of an original public opinion survey that was conducted in Cyprus show that neither the incumbent government at the time of the bail-in nor the previous one are assigned primary responsibility. Instead, blame is dispersed towards two non-elected actors; the national central bank and the banking sector. The findings carry implications for democratic accountability at the domestic and European Union level.
    Keywords: European union; Eurozone crisis; Cyprus; small states; public opinion
    JEL: N0 E6
    Date: 2024–01–01

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