nep-mon New Economics Papers
on Monetary Economics
Issue of 2024‒02‒19
forty-one papers chosen by
Bernd Hayo, Philipps-Universität Marburg

  1. Why The Monetary Policy Framework in Advanced Countries Needs Fundamental Reform By William White
  2. CBDC and the operational framework of monetary policy By Jorge Abad; Galo Nuño; Carlos Thomas
  3. A Field Guide to Monetary Policy Implementation Issues in a New World with CBDC, Stablecoin, and Narrow Banks By James A. Clouse
  4. Impact of the central bank's communication on macro financial outcomes By Tetiana Yukhymenko; Oleh Sorochan
  5. Measuring monetary policy in the UK: the UK Monetary Policy Event‑Study Database By Braun, Robin; Miranda-Agrippino, Silvia; Saha, Tuli
  6. Monetary Policy Tightening and Bank Lending Standards: Evidence from the Chilean Bank Loan Survey By Helmut Franken; Alejandro Jara
  7. Monetary policy invariance, hysteresis, and optimal inflation. By Mikro Abbritti
  8. Corporate Debt Structure and Heterogeneous Monetary Policy Transmission By Marie Alder; Nuno Coimbra; Urszula Szczerbowicz
  9. The Art of Paradigm Maintenance: How the 'Science of Monetary Policy' tries to deal with the inflation of 2021-2023 By Servaas Storm
  10. The Heterogeneous Effect of Monetary Policy Shocks: Evidence for US Households By Tomás Opazo
  11. Monetary Policy Pass-Through to Interest Rates: Stylized Facts from 30 European Countries By Robert C. M. Beyer; Ms. Ruo Chen; Florian Misch; Claire Li; Ezgi O. Ozturk; Mr. Lev Ratnovski
  12. The Last Mile of Monetary Policy: Inattention, Reminders, and the Refinancing Channel By Byrne, Shane; Devine, Kenneth; King, Michael; McCarthy, Yvonne; Palmer, Christopher
  13. Effects of Monetary Policy Frameworks on Stock Market Volatilities: An Empirical Study of Global Economies By Lee, King Fuei
  14. Projecting Banks’ Net Interest Income: an Asset-Liability Approach, Applied to the Euro Area By Thibaut Gentil; Sébastien Ray; Oana Toader
  15. Assessing the Effects of the Global Financial Cycle on Eurozone’s Financial Stress: Does the Quantitative Easing Matter? By Costas Karfakis; Ioannis Karfakis
  16. The origins of monetary policy disagreement: the role of supply and demand shocks By Carlos Madeira; João Madeira; Paulo Santos Monteiro
  17. Understanding the Joint Dynamics of Inflation and Wage Growth in the Euro Area By Galstyan, Vahagn
  18. What inflation disrupts? By Jeanne Lazarus
  19. The heterogeneous impact of inflation on households’ balance sheets. By Clodomiro Ferreira; José Miguel Leiva; Galo Nuño; Álvaro Ortiz; Tomasa Rodrigo; Sirenia Vazquez
  20. Quantitative easing and the functioning of the gilt repo market By Fatouh, Mahmoud; Giansante, Simone; Ongena, Steven
  21. Who Gets Jobs Matters: Monetary Policy and the Labour Market in HANK and SAM By Herman, Uroš; Lozej, Matija
  22. The Influence of Fiscal and Monetary Policies on the Shape of the Yield Curve By Yoosoon Chang; Fabio Gómez-Rodríguez; Christian Matthes
  23. U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations By Giovanni Ugazio; Weining Xin
  24. Price stability and debt sustainability under endogenous trend growth By Schmöller, Michaela; McClung, Nigel
  25. Assessing the Effectiveness of the Fiscal-Monetary Policy Mix: Evidence from Morocco, Egypt and Saudi Arabia By Younes El Khattab; Rachida El Yamani; Ahmed Hefnaoui
  26. Getting through: communicating complex information By McMahon, Michael; Naylor, Matthew
  27. Inflation Perceptions During the Covid Pandemic and Recovery By David E. Lebow; Ekaterina V. Peneva
  28. Precedents, Instruments and Targets that the Fed Has Used to Create and Support a Postcrisis Global Safety Net By Edward J Kane
  29. On the Impact of Oil Prices on Sectoral Inflation: Evidence from World’s Top Oil Exporters and Importers By Leila Ben Salem; Ridha Nouira; Christophe Rault
  30. Macroeconomic Effects of Carbon Transition Policies: An Assessment Based on the ECB’s New Area-Wide Model with a Disaggregated Energy Sector By Coenen, Günter; Lozej, Matija; Priftis, Romanos
  31. Choice of Invoice Currency and Exchange Rate Risk Management: FY2022 questionnaire survey with Japanese overseas subsidiaries (Japanese) By SATO Kiyotaka; KOIBUCHI Satoshi; ITO Takatoshi; SHIMIZU Junko; YOSHIMI Taiyo
  32. 2022 Methods-of-Payment Survey Report: Cash Use Over 13 Years By Christopher Henry; Doina Rusu; Matthew Shimoda
  33. Public information and stablecoin runs By Rashad Ahmed; Iñaki Aldasoro; Chanelle Duley
  34. Privilege Lost? The Rise and Fall of a Dominant Global Currency By Kai Arvai; Nuno Coimbra
  35. Usury and simony Trading for no price: Thomas Aquinas on money loans, sacraments and exchange - Chapter 7 By André Lapidus; Pierre Januard
  36. Bagehot's Classical Money View: A Reconstruction By Perry Mehrling
  37. MDBC e-hryvnia: Zentralbankgeld in Planung By Assen Slim
  38. Digital Mobility of Financial Capital Across Different Time Zones, Factor Prices and Sectoral Composition By Mandal, Biswajit
  39. Cash and Card Acceptance in Retail Payments: Motivations and Factors By Samuel Vandak; Geoffrey Goodell
  40. Exploring missed mortgage payments in the first year of monetary tightening By Shaikh, Sameer; Kilgarriff, Paul; Gaffney, Edward
  41. Do non-bank lenders mitigate credit supply shocks? Evidence from a major bank exit By McCann, Fergal; McGeever, Niall; Peia, Oana

  1. By: William White
    Abstract: The objective pursued by most central banks in recent decades has been a low level of inflation. Since inflation was believed to respond to changes in unemployment, this implied a primary focus on labor markets and output gaps in the "real" economy when setting monetary policy. In contrast, "financial" sector developments were thought to be of no great importance. It is argued in this paper that monetary policy should be guided much more by financial sector developments (credit and debt) and much less by near term targets for inflation. This argument is first supported by an empirical review of the negative outcomes produced by the current policy framework; in particular, financial bubbles have created ever larger bubbles which threaten future growth prospects. A second level of support is provided through questioning the need for and the effectiveness of easy money, and through pointing out its many unintended and dangerous consequences. An alternative monetary policy framework would begin with the observation that an economy is a complex, adaptive system like many others in nature and society. From this perspective, arguments for introducing a "narrow money" regime need more attention.
    Keywords: inflation, monetary policy, financial system, complexity, bubbles
    JEL: N10 E31 E42 E52 E58
    Date: 2023–08–03
  2. By: Jorge Abad (Banco de España); Galo Nuño (Bank for International Settlements); Carlos Thomas (Banco de España)
    Abstract: We analyse the impact of introducing a central bank-issued digital currency (CBDC) on the operational framework of monetary policy and the macroeconomy as a whole. To this end, we develop a New Keynesian model with heterogeneous banks, a frictional interbank market, a central bank with deposit and lending facilities, and household preferences for different liquid assets. The model is calibrated to replicate the main monetary and financial aggregates in the euro area. Our analysis predicts that CBDC adoption implies a roughly equivalent reduction in banks’ deposit funding. However, this ‘deposit crunch’ has a rather small effect on bank lending to the real economy, and hence on aggregate investment and GDP. This result reflects the parallel impact of a CBDC on a central bank’s operational framework. For relatively moderate CBDC adoption levels, the reduction in deposits is absorbed by an almost one-to-one fall in reserves at the central bank, implying a transition from a ‘floor’ system – with ample reserves – to a ‘corridor’ system. For larger CBDC adoption, the loss of bank deposits is compensated by increased recourse to central bank credit, as the corridor system gives way to a ‘ceiling’ system with scarce reserves.
    Keywords: central bank digital currency (CBDC), interbank market, search and matching frictions, excess reserves
    JEL: E42 E44 E52 G21
    Date: 2024–02
  3. By: James A. Clouse
    Abstract: This paper develops an analytical framework aimed at shedding light on the implications of the evolution of financial market structure for monetary policy implementation and transmission. The basic model builds on that developed in Chen et. al. (2014) which, in turn, draws inspiration from the pioneering work of Tobin (1969) and Gurley and Shaw (1960). The paper focuses, in particular, on the implications of introducing new types of fixed-rate financial assets in the financial system including retail and wholesale central bank digital currency (CBDC), stablecoins issued by narrow nonbanks, and deposits issued by narrow banks. The analysis also provides a crude way of capturing some of the effects of bank capital and liquidity regulation on financial intermediation and monetary policy implementation. Perhaps the most important conclusion is that the introduction of new fixed-rate assets by the Federal Reserve or by other financial intermediaries can have significant effects on equilibrium interest rates and patterns of financial intermediation and may also affect the potency of monetary policy tools. These effects are most pronounced when new financial assets are close substitutes for existing financial assets.
    Keywords: Bank Regulation; Financial Innovation; Monetary Policy Implementation; Monetary policy
    JEL: E40 E42 E43 E44 E50 E52
    Date: 2024–01–16
  4. By: Tetiana Yukhymenko (National Bank of Ukraine); Oleh Sorochan (National Bank of Ukraine)
    Abstract: The study explores the impact of central bank communications on a range of macro-financial indicators. Specifically, we examine whether information posted on the National Bank of Ukraine (NBU) website influences foreign exchange (FX) markets and the inflation expectations of experts. Our main results suggest that the NBU's statements and press releases on monetary policy issues matter. For instance, we find that exchange rate movements and volatility are negatively correlated with the volumes of publications of the NBU on its official website. However, this effect is noticeably bigger for volatility than for exchange rate changes. The impact of communication on FX developments is the strongest a week after the news release, and it persists further. Furthermore, inflation expectations of financial experts, though indifferent to all NBU updates, turn out to be sensitive to monetary policy announcements. The letter reduces the level of expectations and interest rates.
    Keywords: central bank communications ; monetary policy ; FX market ; text analysis
    JEL: E58 E71 C55
    Date: 2024–02–05
  5. By: Braun, Robin (Federal Reserve Board of Governors); Miranda-Agrippino, Silvia (Bank of England); Saha, Tuli (Bank of England)
    Abstract: This paper introduces the UK Monetary Policy Event-Study Database (UKMPD), a new and rich dataset of high-frequency monetary policy surprises for the United Kingdom. Intraday surprises are computed around the Bank of England’s Monetary Policy Committee’s announcements, as well as around the press conference that accompanies the publication of the quarterly Monetary Policy Report. The dataset also includes factors that allow to disentangle the different dimensions of UK monetary policy. We use the data to provide updated estimates of the causal effects of rate decisions and forward guidance on financial markets and macroeconomic aggregates in the UK, and provide novel insights on how markets have responded to the changes in the communication strategy of the Bank of England.
    Keywords: UK monetary policy surprises; event-study; intraday; monetary policy transmission; dataset
    JEL: E43 E44 E52 E58 G14
    Date: 2023–11–03
  6. By: Helmut Franken; Alejandro Jara
    Abstract: Our paper studies the banking channel as an amplification mechanism of monetary policy shocks in an Emerging Market Economy. We analyze the aggregated responses to the Chilean Bank Loan Survey, focusing on the average response of lending standards across different credit segments. Our results show that a positive monetary policy shock tightenslending standards in all credit segments, with corporate and mortgage loans being less sensitive than SMEs and consumer loans. We also examine the impact of monetary policy shocks on lending standards during periods of highly contractionary monetary policystance and periods when banks’ capital position becomes a constraint. We find statistically significant amplification effects within these periods, affecting different credit segments heterogeneously. Overall, our results support the notion that the banking channel operates as an effective amplification mechanism, providing evidence consistent with a self-reinforcing operation of the bank-lending, risk-taking, and balance-sheet channels.
    Date: 2023–10
  7. By: Mikro Abbritti
    Keywords: Endogenous Growth, Monetary Policy, Optimal Inflation Target, Downward Wage Rigidity, Monetary Policy Invariance, Zero Lower Bound.
    JEL: E24 E3 E5 O41 J64
    Date: 2023–11
  8. By: Marie Alder; Nuno Coimbra; Urszula Szczerbowicz
    Abstract: Using French firms’ balance sheet data, we show that corporate debt structure plays a significant role in ECB monetary policy transmission. In addition to interest rate policy, we analyse the impact of a novel ECB-induced bond liquidity shock. While both types of policy tightening diminish French firms’ investment, the transmission of conventional monetary policy shocks is stronger for firms with a higher share of bank debt. Conversely, contractionary bond liquidity shocks lower investment more for firms with higher bond shares of total debt. We further investigate the transmission channels and show that bond liquidity tightening reduces French sovereign bond market liquidity and leads to higher bond-bank loan interest rate spreads and lower bond issuance.
    Keywords: Monetary Policy Transmission, Corporate Debt Structure, Investment
    JEL: E22 E43 E44 E52
    Date: 2023
  9. By: Servaas Storm (Delft University of Technology)
    Abstract: The macroeconomic models used by major institutions including the Federal Reserve and the International Monetary Fund (IMF) failed to predict the inflation surge during 2021-2023. The output gap, the unemployment gap, the New Keynesian Phillips curve and inflation expectations did not give timely and relevant signals. The re-emergence of inflation thus threw the 'science of monetary policy' off the rails. Faced with the choice between changing their paradigm and proving that there is no need to do so, the 'scientists of monetary policy' got busy on the proof. As a result, a number of ad-hoc epicycles have been added to the New Keynesian analytical core, with the help of which one can claim to be able to explain the sudden acceleration of inflation post-factum. This paper critically reviews the theoretical and empirical merits of three recent tweaks to the New Keynesian core: using the vacancy ratio as the appropriate measure of real economic activity; hammering on the considerable risk of an imminent wage-price spiral; and the resurrection of the non-linear Phillips curve. The paper concludes by drawing out sobering lessons concerning the art of paradigm maintenance as practiced by the 'scientists of monetary policy'.
    Keywords: Inflation; science of monetary policy; output gap; unemployment gap; vacancy ratio; inflation expectations; wage-price spiral; non-linear Phillips curve.
    JEL: E0 E5 E6 E62 O23 I12 J08
    Date: 2023–10–04
  10. By: Tomás Opazo
    Abstract: This paper contributes to the growing research on the heterogeneous effects of monetary policy. Using smooth local projections, we estimate the response of consumption expenditure to monetary policy shocks across different groups of households. Our findings show that the expenditures of older households are more responsive to monetary policy shocks than those of young households, indicating the existence of a life-cycle wealth effect. Moreover, households with a mortgage show larger adjustments compared to outright homeowners, reflecting the influence of their balance sheet composition. Additionally, lower-skilled households exhibit larger consumption responses in comparison to high-skilled households. These findings suggest the relevant influence of the income composition channel, earnings heterogeneity, and balance sheet composition channel in the transmission of monetary policy.
    Date: 2023–09
  11. By: Robert C. M. Beyer; Ms. Ruo Chen; Florian Misch; Claire Li; Ezgi O. Ozturk; Mr. Lev Ratnovski
    Abstract: The extent to which changes in monetary policy rates lead to changes in loan and deposit rates for households and firms, referred to as ‘pass-through’, is an important ingredient of monetary policy transmission to output and prices. Using data on seven different bank interest rates in 30 European countries, different approaches, and the full sample as well as a subsample of euro area countries, we show that a) the pass-through in the post-pandemic hiking cycle has been heterogenous across countries and types of interest rates; b) the pass-through has generally been weaker and slower, except for rates of non-financial corporation loans and time deposits in euro area countries; c) differences in pass-through over time and across countries for most deposit rates are correlated with financial sector concentration, liquidity, and loan opportunities, and d) the effects of pass-through to outstanding mortgage rates on monetary transmission on prices and output are heterogenous across countries.
    Keywords: Monetary Policy Transmission; Monetary Policy Pass-Through
    Date: 2024–01–12
  12. By: Byrne, Shane (Central Bank of Ireland and Trinity College Dublin); Devine, Kenneth (Central Bank of Ireland and University College Dublin); King, Michael (Trinity College Dublin); McCarthy, Yvonne (Central Bank of Ireland); Palmer, Christopher (Massachusetts Institute of Technology, NBER, and J-PAL)
    Abstract: Under-refinancing limits the transmission of accommodative monetary policy to the household sector and costs mortgage holders in many countries a significant fraction of income annually. We test whether targeted communication can reduce the attention frictions that inhibit transmission by partnering with a large bank to analyze a field experiment testing messages sent to 12, 000 Irish households. While we find only small effects of disclosure design improvements, a reminder letter increases refinancing by 76%, from 8.9% to 15.7%. To interpret this reminder effect, we extend and estimate a mixture model of inattentive financial decision-making to allow for disclosure treatment effects on attention. We find that reminders increase the likelihood mortgage holders are attentive by over 60%, from 24% to 39%. A conservative back-of-the-envelope cost-effectiveness calculation implies that the average reminder letter generated e42 of mortgage borrower consumption (e605 per refinancing household). Our results illustrate that regulatory interventions to enhance lenders’ communication to customers, such as refinancing reminders - or, in a more theoretical setup, targeted central bank communications - could have a larger effect on refinancing than a standard policy rate cut. Reminders could further strengthen the refinancing channel and stimulate local consumption even when policy rates are at the zero-lower bound or set in a monetary union.
    Keywords: Monetary policy transmission, inattention, refinancing, central bank communication, disclosure.
    JEL: D83 E58 G21 G28 G51
    Date: 2023–07
  13. By: Lee, King Fuei
    Abstract: This study investigates the relationship between monetary policy frameworks and stock market volatilities across countries. Using a novel classification framework by Cobham (2021), we study 84 countries across the world over the period of 1984 to 2017. We find that countries that maintain a fixed exchange rate peg tend to experience higher levels of stock market volatility, while countries adopting flexible inflation-targeting policies tend to exhibit lower levels of stock market volatilities. Additionally, the stock markets of countries operating under monetary policies characterized by unstructured discretion tend to be more volatile, while those operating with well-structured discretion tend to be more stable. Our results also suggest that while the choice of monetary policy framework is an important determinant of stock market volatility, it is not the only factor driving it. As such, policymakers should carefully consider the implications of different monetary policy frameworks when designing monetary policy, and take a holistic approach to financial stability that incorporates a range of factors beyond just monetary policy frameworks.
    Keywords: Monetary Policy Frameworks, Stock Market Volatility, Exchange Regimes, Inflation-Targeting
    JEL: E42 G10
    Date: 2023–12
  14. By: Thibaut Gentil; Sébastien Ray; Oana Toader
    Abstract: In a context of volatile interest rates, the impact of monetary policy decisions on banks’ net interest income is a key question for financial stability, since changes in profitability may affect their capacity to absorb losses and to accumulate capital through retained earnings. This paper presents an ALM-like model developed to project the evolution of the aggregate balance sheet and the interest income and expense of a banking sector under various scenarios. Based on balance sheet structure data, the model simulates the expiration of maturing instruments and the progressive accumulation of new issuances. Using conservation laws valid at the aggregate level, the model provides a consistent accounting-based framework, where bank reserve holdings depend on central bank actions, and the volume of customer deposits results from net payments between the banking sector and the rest of the economy. A combination of financial data sources makes it possible to build a simplified balance sheet of the aggregate euro area banking sector, on which the model can be run. Its total net interest income turns out to be, on the whole, positively sensitive to changes in interest rates. The model can also quantify sensitivities to other factors, such as central bank operations on securities or changes in the cost structure of customer deposits. Back-testing results on 2016–23 confirm the model’s ability to account for observed interest margins.
    Keywords: Interest Rates, Banking Sector, Net Interest Income, Monetary Policies, Asset-liability, Projection Model
    JEL: G21 E43 E44 E47 E58
    Date: 2023
  15. By: Costas Karfakis (Department of Economics, University of Macedonia); Ioannis Karfakis (Business Discipline, London School of Science and Technology, Memo House, London, England, W3 0XA, UK)
    Abstract: This paper examines whether the expanded Quantitative Easing policies of the European Central Bank during the period 2015-2022 have influenced the impact of the Global Financial Cycle (GFC) on the Eurozone’s financial stress. The threshold regression reveals that these policies implementation has reduced the impact of GFC on financial stress in the post-2015 period, and thus contributed to lower systemic risk. The impulse responses of the quantile regression show that a global risk aversion shock does not have persistent effects on the financial stress distribution, and thus the GFC would not “set the tone†of Eurozone’s financial conditions.
    Keywords: Quantitative easing; financial stress, global financial cycle, systemic risk; balance sheet; threshold regression; quantile regression analysis
    JEL: E52 E58 G15
    Date: 2024–01
  16. By: Carlos Madeira; João Madeira; Paulo Santos Monteiro
    Abstract: We investigate how dissent in the FOMC is affected by structural macroeconomic shocks obtained using a medium-scale DSGE model. We find that dissent is less (more) frequent when demand (supply) shocks are the predominant source of inflation fluctuations. In addition, supply shocks are found to raise private sector forecasting uncertainty about the path of interest rates. Since supply shocks impose a trade-off between inflation and output stabilization while demand shocks do not, our findings are consistent with heterogeneous preferences over the dual mandate among FOMC members as a driver of policy disagreement.
    Date: 2023–10
  17. By: Galstyan, Vahagn (Central Bank of Ireland)
    Abstract: This paper presents an empirical framework and analysis of the interactions among inflation, wages, employment, and output in the euro area. Results identify price shocks and demand shocks as the primary exogenous factors explaining historical variance. The wage gap emerges as a key determinant of wage dynamics in the aftermath of a price shock. In contrast, the output gap becomes dominant following demand shocks. The real wage gap acts as a corrective mechanism, ensuring that prices and wages in particular align with the broader economic landscape. Forecasts for the period starting 2023Q3 emphasise the enduring significance of the real wage gap, projecting its ongoing impact on nominal wages in tight labour markets. As for inflation expectations, the estimates emphasise their stickiness. In this context, the significant and persistent price shock that has occurred suggests a gradual decline in expectations, potentially leading to an extended period of elevated inflation.
    Keywords: Inflation, Wages, Central Banking.
    JEL: E00 E12 E30 E31 E32 E37
    Date: 2023–12
  18. By: Jeanne Lazarus (CSO - Centre de sociologie des organisations (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Talking about money means talking about practices, morals, policies, the banking system, the social system, families, inequalities, poverty, wealth, measure, excess, or lack. However, most often, money is approached as a fixed point around which individuals, societies, banks, or policies move. Inflation jeopardizes this fixity in several ways: the value of saved money decreases or even collapses when the value of goods and services rises. Old price scales are no longer valid: everything increases, but not everything increases at the same speed, so that the relationships between things, between goods, and even between people, are in flux. Two attitudes then coexist: on the one hand, clinging to the old landscape of currency and prices, trying to make sense of what is happening; on the other, attempting to understand the new landscape and navigate with these new rules that have not yet been mastered.
    Keywords: inflation, money, justice, monetary landscape
    Date: 2023
  19. By: Clodomiro Ferreira (Banco de España); José Miguel Leiva (BBVA Research); Galo Nuño (Banco de España); Álvaro Ortiz (BBVA Research); Tomasa Rodrigo (BBVA Research); Sirenia Vazquez (BBVA Research)
    Abstract: We identify and study analytically three key channels that shape how inflation affects wealth inequality: (i) the traditional wealth (or Fisher) channel through which inflation redistributes from lenders to borrowers; (ii) an income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the prices of different goods affect people differently depending on their consumption baskets. We then quantify these channels during the 2021 inflation surge in Spain using detailed, high-frequency customer-level data from one of the main commercial banks. The unexpected nature of the inflation shock and its perception as temporary in this period in particular closely fit the assumptions behind our theoretical decomposition. Results show that the wealth and income channels are an order of magnitude larger than the consumption channel. Middle-aged individuals were, in net terms, largely unaffected by inflation, while the elderly suffered the most. We find similar results when using representative surveys on households’ wealth, income, and consumption.
    Keywords: uneven inflation, net nominal positions, nominal wage rigidities
    JEL: G51 D31 E31
    Date: 2024–01
  20. By: Fatouh, Mahmoud (Bank of England); Giansante, Simone (Department of Economics, Business and Statistics, University of Palermo); Ongena, Steven (University of Zurich, Swiss Finance Institute, KU Leuven, NTNU Business School and CEPR)
    Abstract: We assess the impact of quantitative easing (QE) on the provisioning of liquidity and the pricing in the UK gilt repo market. We compare the behaviour of banks that received reserves injections via QE operations to other similar banks in terms of the amounts lent and pricing. We also investigate whether leverage ratio capital requirements affected the amounts of liquidity supplied by broker-dealers and the spreads they charged. We find that QE interventions can improve liquidity provision, and that their size determines how this is attained. QE can also reduce the cost of borrowing in the repo market unless it was associated with spikes in demand for liquidity. Our findings further indicate that the leverage ratio supports the provision of liquidity during stress, as it prompts banks to become less leveraged. However, the larger capital charge repo transactions attract under the leverage ratio requirement is reflected in their spreads.
    Keywords: Monetary policy; quantitative easing; gilt repo market; leverage ratio
    JEL: G10 G21 G23
    Date: 2024–02–07
  21. By: Herman, Uroš (Aix-Marseille University); Lozej, Matija (Central Bank of Ireland)
    Abstract: This paper first provides empirical evidence that labour market outcomes for the less educated, who also tend to be poorer, are substantially more volatile than those for the well-educated, who tend to be richer. We estimate job finding rates and separation rates by educational attainment for several European countries and find that job finding rates are smaller and separation rates larger at lower educational attainment levels. At cyclical frequencies, fluctuations of the job finding rate explain up to 80% of unemployment fluctuations for the less educated. We then construct a stylised HANK model augmented with search and matching and ex-ante heterogeneity in terms of educational attainment. We show that monetary policy has stronger effects when the job market for the less educated and, hence, poorer is more volatile. The reason is that these workers have the most procyclical income coupled with the highest marginal propensity to consume. An expansionary monetary policy shock that increases labour demand disproportionally affects the labour market segment for the less educated, causing a strong increase in consumption. This further amplifies labour demand and increases labour income of the poor even more, amplifying the initial effect. The same mechanism carries over to forward guidance.
    Keywords: Heterogeneous agents, Search and matching, Monetary policy, Business cycles, Employment.
    JEL: E40 E52 J64
    Date: 2023–12
  22. By: Yoosoon Chang; Fabio Gómez-Rodríguez; Christian Matthes
    Abstract: We investigate the influence of the U.S. government’s spending and taxation decisions, along with the monetary policy choices made by the Federal Reserve, on the dynamics of the nominal yield curve. Aggregate government spending moves the long end of the yield curve, whereas monetary policy and changes in taxation move the short end of the yield curve on impact. Disentangling different types of government spending, we find that only government consumption exerts a discernible influence on the short end of the yield curve. The effects are generally transient and disappear after one year.
    Date: 2024–01
  23. By: Giovanni Ugazio; Weining Xin
    Abstract: We empirically examine U.S. monetary policy spillovers to the Middle East and Central Asia (ME & CA) region by decomposing U.S. interest rates changes into two orthogonal shocks: the pure monetary policy shock and the information news shock. Using a sample of 16 ME & CA countries, we find that when interest rates increase, the two shocks have opposite spillovers on the region. Tightening driven by contractionary monetary policy shocks hinders growth, while tightening driven by positive information news shocks boosts growth despite higher interest rates. Countries with weaker fundamentals face more negative spillovers from contractionary monetary policy shocks but may sometimes benefit more from positive information news shocks. Moreover, high oil prices mitigate both spillovers for oil exporters while global risk appetite amplifies both spillovers. Finally, we estimate a large degree of heterogeneity in the impact of the 2022 U.S. tightening cycle on ME & CA countries, with oil exporters with stronger fundamentals withstanding well the shock and oil importers with weaker fundamentals being hit the most.
    Keywords: U.S. monetary policy; spillovers; fundamentals; oil prices
    Date: 2024–01–19
  24. By: Schmöller, Michaela; McClung, Nigel
    Abstract: This paper studies price stability and debt sustainability when the real rate exceeds trend growth (r > g) in a New Keynesian model with endogenous technology growth through R&D. Under debt-stabilizing ("passive") fiscal policy the Taylor principle is not sufficient for determinacy. Instead, monetary policy should at least aim to raise r − g with persistent inflation in order to stabilize the expectations of households, firms and innovators. Endogenous growth provides a self-financing mechanism for deficits under active fiscal policy; growth provides some backing for the public debt, which reduces the need for debt-stabilizing inflation when current fiscal deficits are not backed by future fiscal surpluses. Because growth creates some fiscal space, a monetary policy that adheres to the Taylor principle combined with active fiscal policy can yield a unique stable equilibrium, provided that the policy permits r−g to fall with inflation.
    Keywords: Public Debt, Inflation, Monetary-Fiscal Interaction, Fiscal Theory of the Price Level, Endogenous Growth
    JEL: E31 E52 E62 E24 O42
    Date: 2024
  25. By: Younes El Khattab (Hassan II University of Casablanca); Rachida El Yamani (University of Casablanca Morocco); Ahmed Hefnaoui (University of Casablanca Morocco)
    Abstract: The macroeconomic effects of the policy mix have been the subject of a rich array of theoretical literature. Our research paper further enriches the empirical literature and goes beyond a single open economy analysis by proposing a multi-country assessment of the policy mix in the Middle East and North Africa (MENA) region, under the two hypotheses of monetary and fiscal dominance. We base our study on a structural vector autoregression (SVAR) approach performed on secondary data over the period 1977-2021 for three MENA countries: Morocco, Egypt, and Saudi Arabia. Our data is sourced from World Development Indicators and includes five variables: Current account balance (percent of GDP) (CA), inflation rate (INF), GDP growth (annual percent) (GDP), money supply (M3), and government expenditure (GEXP). The results show that the coordination scheme choice has no significant effect on the policy mix effectiveness in the three countries. The policy mix in Morocco is more effective in preserving price stability whereas stabilization policies in Egypt are more effective in boosting economic activity. Because of its limited exposure to energy price risk (i.e., imported inflation), Saudi Arabia has a wider margin of maneuver in implementing growth-oriented policies without imperiling price stability. Considering that previous studies gave different views on whether monetary or fiscal policies are more effective in a single open economy analysis, to our knowledge, no relevant studies have performed a multi-country assessment of the policy mix in the MENA region. This research provides an empirical framework for analyzing the macroeconomic implications of monetary and fiscal policies in the MENA region, allowing us to draw interesting conclusions about the effectiveness of the policy mix in the sample countries.
    Date: 2023–12–20
  26. By: McMahon, Michael (University of Oxford, CEPR and CfM (LSE)); Naylor, Matthew (Bank of England)
    Abstract: Policymakers communicate complex messages to multiple audiences; we investigate how complexity impacts messages ‘getting through’ effectively. We distinguish ‘semantic’ complexity – the focus of existing empirical studies – from ‘conceptual’ complexity, which better reflects information‑processing costs identified by theory. We conduct an information‑provision experiment using central bank communications; conceptual complexity – captured by a novel quantitative measure we construct – matters more for getting through. This is true even for technically trained individuals. Bank of England efforts to simplify language have reduced traditional semantic measures, but conceptual complexity has actually increased. Our findings can direct efforts for effective policy communication design.
    Keywords: Information transmission; central bank communications; linguistic complexity; rational inattention
    JEL: C83 E58 E61 E70
    Date: 2023–10–01
  27. By: David E. Lebow; Ekaterina V. Peneva
    Abstract: Since 2016, the Michigan Surveys of Consumers (MSC) have included questions on inflation perceptions—what people believe inflation to have been—that are worded symmetrically with their long-standing questions on inflation expectations. The questions on inflation perceptions are currently posed four times a year—in February, May, August, and November. Using available data at the time, Axelrod, Lebow, and Peneva (2018) concluded that inflation expectations and perceptions are very similar and that if perceptions were to change, expectations were likely to change as well.
    Date: 2024–01–19
  28. By: Edward J Kane
    Abstract: Much has been made of the Global Safety Net that has been put into place since the Great Financial Crisis but the distributional effects of some of the Fed's strategies are still shrouded in mystery. In supplying bailout funds at below-market terms to uninsured creditors of firms and governments that were economically insolvent, the Fed reinforced the implicit expectation that megabanks are free to take on high levels of risk and benefit from the upside while being protected from any serious downside. An important example of this is the role of currency swaps. By extending its "temporary" dollar swap lines with other central banks, including the European Central Bank, "until further notice" the Fed broadcasted its intention to act as the financial world's "liquidity provider" of last resort. The "liquidity" support provided by the Fed to megabanks through cross-border lending in fact acted as subsidies, the costs of which were borne for by ordinary US citizens. This is just one piece of an unacknowledged game plan of building global strategies of crisis prevention and crisis management on misdirection and piles of bullsh*t.
    Keywords: capital requirements, too big to fail, loss recognition, income-distribution effect
    JEL: E58 G21 G32
    Date: 2023–09–09
  29. By: Leila Ben Salem; Ridha Nouira; Christophe Rault
    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 price, sectoral inflation, NARDL, panel threshold model, oil-importing countries, oil-exporting countries
    JEL: C50 Q40 Q43
    Date: 2024
  30. By: Coenen, Günter (European Central Bank); Lozej, Matija (Central Bank of Ireland); Priftis, Romanos (European Central Bank)
    Abstract: In this paper, we use scenario analysis to assess the macroeconomic effects of carbon transition policies aimed at mitigating climate change. To this end, we employ a version of the ECB’s New Area-Wide Model (NAWM) augmented with a framework of disaggregated energy production and use, which distinguishes between “dirty” and “clean” energy. Our central transition scenario is that of a permanent increase in carbon taxes, which are levied as a surcharge on the price of dirty energy. Our findings suggest that increasing euro area carbon taxes to an interim target level consistent with the transition to a net-zero economy entails a transitory rise in inflation and a lasting, albeit moderate decline in GDP. We show that the short and medium-term effects depend on the monetary policy reaction, the path of the carbon tax increase and its credibility, while expanding clean energy supply is key for containing the decline in GDP. Undesirable distributional effects can be addressed by redistributing the fiscal revenues from the carbon tax increase across households.
    Keywords: Climate change, carbon taxation, DSGE model, monetary policy, fiscal policy, euro area.
    JEL: C54 E52 E62 H23 Q43
    Date: 2023–08
  31. By: SATO Kiyotaka; KOIBUCHI Satoshi; ITO Takatoshi; SHIMIZU Junko; YOSHIMI Taiyo
    Abstract: This study presents summary results from the FY2022 RIETI Questionnaire Survey where 22, 529 Japanese overseas subsidiaries were surveyed. Our main findings based on survey answers from 1, 390 respondent firms are as follows: First, in intra-firm trade between Japanese subsidiaries operating in Asia and Japanese head offices, the Asian currencies including renminbi (RMB) are often used as invoice currency, but the share of Asian currency-invoiced trade did not increase compared to the result of the FY2018 Survey. Second, RMB-invoiced transactions grow only in intra-firm trade with Japanese head offices. Intriguingly, RMB is not commonly used in intra-Asian trade: while other Asian currencies are more commonly used. Third, Japanese sales subsidiaries tend to have large currency mismatches between procurements of products invoiced in yen and the US dollar, and sales of products invoiced in local currencies, which calls for efficient foreign exchange risk management of Japanese subsidiaries.
    Date: 2024–01
  32. By: Christopher Henry; Doina Rusu; Matthew Shimoda
    Abstract: We present results from the 2022 Methods-of-Payment Survey, including updated payment shares based on a three-day shopping diary. We highlight long-term trends in cash holdings, management and use observed across results from previous surveys in 2009, 2013 and 2017. We also review recent trends relating to the COVID-19 pandemic using data from 2020 and 2021. We assess various factors associated with long-term trends in cash use.
    Keywords: Bank notes; Coronavirus disease (COVID-19); Digital currencies and fintech; Financial services
    JEL: D83 E41
    Date: 2024–01
  33. By: Rashad Ahmed; Iñaki Aldasoro; Chanelle Duley
    Abstract: We provide a global games framework to study how the promise of par convertibility by various types of stablecoins breaks down. Public information disclosure has an ambiguous effect on run risk: greater transparency can lead to increased (reduced) run risk for sufficiently low (high) stablecoin holders' priors about reserve quality or transaction costs of conversion to fiat. If the distribution of reserve assets is fat-tailed (i.e. reserves are volatile), par convertibility is resilient to small shocks but fails with large negative public shocks, even for high initial reserve values. We find empirical support for the testable implications of the model.
    Keywords: stablecoins, crypto, global games, bank runs
    JEL: C70 D83 D84 E42 G01 G20
    Date: 2024–01
  34. By: Kai Arvai; Nuno Coimbra
    Abstract: How does a country obtain the status of a safe haven with a dominant global currency? This paper argues that size matters: as a country becomes larger and more diversified, the underlying shock process of the economy becomes less variable. Shocks that can drive a government to default become less likely, implying lower default probability, lower interest rates and higher debt-to-GDP. Furthermore, the larger a country’s share in the supply of global safe assets, the more liquid and attractive its bonds are for investors. If the dominant currency country grows less than the rest of the world, its status as a safe haven erodes and interest rate differentials decline. This could explain the recent evidence of shrinking US return differentials on its cross-border bond portfolios.
    Keywords: Dominant Currency, Safe Assets, US Dollar, Default
    JEL: E42 F02 F33 N10
    Date: 2023
  35. By: André Lapidus (PHARE - Philosophie, Histoire et Analyse des Représentations Économiques - UP1 - Université Paris 1 Panthéon-Sorbonne); Pierre Januard
    Abstract: Throughout the Middle Ages, the charging of interest on monetary loans, as well as the sale of sacraments, were generally considered to be special types of sins: respectively, usury and simony. The repeated condemnations of these acts suggests to the contemporary reader that they could be viewed as prefigurations of contested commodities. Relying on Thomas Aquinas's works written in the second half of the 13th century, it is shown in this chapter that money and sacraments were indeed viewed as exchanged, though, in a sense, as traded for no price. The result is the existence, in the framework of exchange, of various situations which might be ranked according to increasing commodification: first, an absolute non-commodification for the money loan, whose price is zero due to the prohibition of the payment of interest to the lender due to the loan itself, although an indemnity can be paid for other reasons and, from an economic viewpoint, appears as a counterpart for the opportunity cost of the loan. Then, two ways of expressing a kind of commodification in dealing with the sacraments: a lexical commodification in which sacraments do have a "price", as Aquinas mentioned, but one that is out of reach on this earth; and a partial operational commodification, again for sacraments (especially for the Eucharist through mass offerings), in which something like an exchange for sacraments takes place, not at an impossible price but according to a kind of tariff which allows the priest to live.
    Keywords: Thomas Aquinas, Simony, Usury, Money loans, Sacraments, Just price, Commodification
    Date: 2024
  36. By: Perry Mehrling (Pardee School of Global Studies at Boston University)
    Abstract: Bagehot is difficult for modern economists to read with understanding, for three reasons. He was a classical economist not neoclassical, his orientation was global not national, and, most importantly, his intellectual formation was as a practicing country banker not an academic. This paper adopts all three perspectives, and uses this frame to reinterpret his mature work, both Lombard Street and the unfinished Economic Studies, as the origin of the key currency tradition which continues as a minority view in modern economics.
    Keywords: Bagehot Rule, key currency, money view, Lombard Street, Ricardo
    JEL: B12 B17 B31
    Date: 2024–01–04
  37. By: Assen Slim (CREE EA 4513 - Centre de recherches Europes-Eurasie - Inalco - Institut National des Langues et Civilisations Orientales, CESSMA UMRD 245 - Centre d'études en sciences sociales sur les mondes africains, américains et asiatiques - IRD - Institut de Recherche pour le Développement - Inalco - Institut National des Langues et Civilisations Orientales - UPCité - Université Paris Cité)
    Abstract: In einem internationalen Kontext, in dem die Blockchain-Technologie zunehmend an Attraktivität gewinnt, wurden zahlreiche Projekte für digitale Zentralbankwährungen (MDBC) ins Leben gerufen. Das von der ukrainischen Zentralbank (NBU) initiierte e-hryvnia-CBDM-Projekt ist eines der am weitesten fortgeschrittenen in Europa. Nach einer Definition des Begriffs MDBC gibt dieser Artikel einen Überblick über die Erwartungen der NBU, die Ergebnisse des 2018 gestarteten Pilotprojekts MDBC e-hryvnia und die noch zu beseitigenden Hindernisse für die endgültige Einführung dieser Zentralbankwährung der neuen Generation.
    Abstract: In an international context marked by a growing attraction for blockchain technology, many central bank digital currency (CBD) projects have emerged. The e-Hryvnia CBDC project initiated by the National Bank of Ukraine (NBU) is one of the most advanced in Europe. After defining the concept of CBDC, this article reviews the NBU's expectations, the findings of the CBDC e-hryvnia pilot project launched in 2018, and the hurdles to be cleared to launch this new generation of central bank currency.
    Abstract: La MDBC e-hryvnia : une monnaie banque centrale en projet Dans un contexte international marqué par un attrait croissant pour la technologie blockchain, de nombreux projets de monnaies digitales de banques centrales (MDBC) ont vu le jour. Le projet de MDBC e-hryvnia engagé par la banque centrale d'Ukraine (NBU) est l'un des plus avancés d'Europe. Après avoir défini la notion de MDBC, cet article fait le point sur les attentes de la NBU, les conclusions du projet pilote de MDBC e-hryvnia lancé en 2018 et les obstacles qui restent à lever pour lancer définitivement cette monnaie banque centrale de nouvelle génération.
    Keywords: Central bank digital currency, CDBC, e-hryvnya, Ukraine, National Bank of Ukraine, Monnaie digitale de banque centrale, MDBC, e-hryvnia, Banque nationale d'Ukraine
    Date: 2022–12–06
  38. 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 pre-condition 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 time-zone 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, but the mechanism. 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 F2 F21
    Date: 2024
  39. By: Samuel Vandak; Geoffrey Goodell
    Abstract: The landscape of payment methods in retail is a complex and evolving area. Vendors are motivated to conduct an appropriate analysis to decide what payment methods to accept out of a vast range of options. Many factors are included in this decision process, some qualitative and some quantitative. The following research project investigates vendors' acceptance of cards and cash from various viewpoints, all chosen to represent a novel perspective, including the barriers and preferences for each and correlations with external demographic factors. We observe that lower interchange fees, limited in this instance by the regulatory framework, play a crucial role in facilitating merchants' acceptance of card payments. The regulatory constraints on interchange fees create a favorable cost structure for merchants, making card payment adoption financially feasible. However, additional factors like technological readiness and consumer preferences might also play a significant role in their decision-making process. We also note that aggregate Merchant Service Providers (MSPs) have positively impacted the payment landscape by offering more competitive fee rates, particularly beneficial for small merchants and entrepreneurs. However, associated risks, such as account freezes or abrupt terminations, pose challenges and often lack transparency. Last, the quantitative analysis of the relationship between demographic variables and acceptance of payment types is presented. This analysis combines the current landscape of payment acceptance in the UK with data from the most recent census from 2021. We show that the unemployment rates shape card and cash acceptance, age affects contactless preference, and work-from-home impacts credit card preference.
    Date: 2024–01
  40. By: Shaikh, Sameer (Central Bank of Ireland); Kilgarriff, Paul (Central Bank of Ireland); Gaffney, Edward (Central Bank of Ireland)
    Abstract: This Note assesses entry rates of mortgages into arrears since 2012 using loan-level data for Irish domestic banks, with a focus on the monetary tightening period from June 2022 to June 2023. Entry into mortgage arrears reached very low levels by mid-2022 and has remained low, though increasing slightly in 2023. Mortgages with a history of performance problems are more likely to enter arrears, as are mortgages that originated before 2009 and older borrowers. Since 2022, tracker-rate mortgages have been more likely to miss payments than other mortgages. Although most flows into arrears are among mortgages with historical repayment challenges and tracker mortgages, 16 per cent of borrowers entering arrears were on fixed or standard variable rates with no history of mortgage non-performance.
    Date: 2023–11
  41. By: McCann, Fergal (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland); Peia, Oana (University College Dublin)
    Abstract: We study the transmission of credit supply shocks to firms by exploiting the unexpected exit of the third-largest lender in the Irish business lending market in 2020 and a unique matched firm-lender dataset that covers both banks and nonbank financial institutions. We find that borrowers of the exiting bank receive less credit along both the extensive and intensive margin in the period after the announcement, highlighting that credit supply is not perfectly substitutable across lenders. However, we show that this negative credit supply shock is partly mitigated by non-bank lenders. Borrowers of the exiting bank are more likely to borrow from non-banks following the shock, with the effects driven by business loan facilities, and stronger among riskier firms.
    Keywords: credit supply, non-bank lending, banking relationships.
    JEL: G21 G23 G30 G32
    Date: 2023–10

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