nep-mon New Economics Papers
on Monetary Economics
Issue of 2024‒05‒06
27 papers chosen by
Bernd Hayo, Philipps-Universität Marburg

  1. Monetary Policy and Money Market Funds in Europe By Marco Cipriani; Daniel Fricke; Stefan Greppmair; Gabriele La Spada; Karol Paludkiewicz
  2. Fragmented Monetary Unions By Luca Fornaro; Christoph Grosse-Steffen
  3. Central bank digital currency and monetary policy implementation By Caccia, Enea; Tapking, Jens; Vlassopoulos, Thomas
  4. Monetary policy and bank-type resilience in Germany from 1999 to 2022 By Sepp, Tim Florian; Israel, Karl-Friedrich; Treitz, Benjamin; Hartl, Tom
  5. Quantitative Easing, Bond Risk Premia and the Exchange Rate in a Small Open Economy By Christensen, Jens H. E.; Zhang, Xin
  6. Transactional demand for central bank digital currency By Nocciola, Luca; Zamora-Pérez, Alejandro
  7. Understanding Inflation Expectations: Data, Drivers and Policy Implications By Frantisek Brazdik; Tatiana Keseliova; Karel Musil; Radek Snobl; Jan Solc; Stanislav Tvrz; Jan Zacek
  8. Changing Central Bank Pressures and Inflation By Hassan Afrouzi; Marina Halac; Kenneth S. Rogoff; Pierre Yared
  9. Policy lessons from global retail CBDC projects By Nic Spearman
  10. Determinants of Uruguay's Real Effective Exchange Rate: A Mundell-Fleming Model Approach By Didarul Islam; Mohammad Abdullah Al Faisal
  11. The Performance of Emerging Markets During The Fed’s Easing and Tightening Cycles: A Cross-Country Resilience Analysis By Joshua Aizenman; Donghyun Park; Irfan A. Qureshi; Gazi Salah Uddin; Jamel Saadaoui
  12. Functional Oil Price Expectations Shocks and Inflation By Christina Anderl; Guglielmo Maria Caporale
  13. Stablecoins: Business Model, Systemic Risks and Policy Perspectives By Srichander Ramaswamy
  14. Analysis of recent inflation dynamics in Spain. An approach based on the Blanchard and Bernanke (2023) model By Morteza Ghomi; Samuel Hurtado; José Manuel Montero
  15. Instruments And Effects Of Monetary And Fiscal Policy: The Relationship Between Inflation, Vat, And Deposit Interest Rate By Ali Dogdu; Murad Kayacan
  16. Banking Behaviour and Political Business Cycle in Africa: The Role of Independent Regulatory Policies of the Central Bank By Daniel Ofori-Sasu; Elikplimi Komla Agbloyor; Dennis Nsafoah; Simplice A. Asongu
  17. Should we worry about the high producer prices Yes but By Susan Knox; Palesa Mnguni; Pieter Pienaar; Witness Simbanegavi
  18. Surging commodity prices explain a lot By Theo Janse van Rensburg; Erik Visser
  19. Interest Rate Pass-Through Asymmetry: A Meta-Analytical Approach By Tersoo David Iorngurum
  20. Demand for U.S Banknotes at Home and Abroad: A Post-Covid Update By Ruth A. Judson
  21. Dominant Currency Pricing Transition By Marco Garofalo; Giovanni Rosso; Roger Vicquéry
  22. Conflict inflation: Keynesian path dependency or Marxian cumulation? By Peter Skott
  23. On Equilibrium Determinacy in Overlapping Generations Models with Money By Tomohiro Hirano; Alexis Akira Toda
  24. The Dollar-Renminbi Tango: The Impacts of Argentina’s Potential Dollarization on its Relations with China By Otaviano Canuto; Xiaofeng Wang
  25. Why Do We Dislike Inflation? By Stefanie Stantcheva
  26. To change or not to change The evolution of forecasting models at the Bank of England By Aurélien Goutsmedt; Francesco Sergi; Béatrice Cherrier; François Claveau; Clément Fontan; Juan Acosta
  27. Financial Literacy, Risk Tolerance, and Cryptocurrency Ownership in the United States By Fumiko Hayashi; Aditi Routh

  1. By: Marco Cipriani; Daniel Fricke; Stefan Greppmair; Gabriele La Spada; Karol Paludkiewicz
    Abstract: As shown in a past Liberty Street Economics post, in the United States, the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European Central Bank (ECB) and the size of European MMFs investing in euro-denominated securities is also positive—as long as policy rates are positive; after the ECB introduced negative policy rates in 2015, that relationship broke down, as MMFs received large inflows during this period.
    Keywords: monetary policy; euro-denominated money market funds; Pass-through
    JEL: G23 E4 E5
    Date: 2024–04–11
  2. By: Luca Fornaro; Christoph Grosse-Steffen
    Abstract: We provide a theory of financial fragmentation in monetary unions. Our key insight is that currency unions may experience of symmetry: that is episodes in which identical countries react differently when exposed to the same shock. During these events part of the union suffers a capital flight, while the rest acts as a safe haven and receives inflows. The central bank then faces a difficult trade-off between containing unemploymnet in capital-flight countries, and inflationary pressures in safe-haven ones. By counteracting private capital flows with public ones, unconventional monetary interventions mitigate the impact of financial fragmentation on employment and inflation, thus helping the central bank to fulfill its price stability mandate.
    Keywords: Monetary unions, euro area, fragmentation, optimal monetary policy in openeconomies, Capital flows, fiscal crises, unconventional monetary policies, inflation, endogenous breaking of symmetry, Optimum
    JEL: E31 E52 F32 F41 F42 F45
    Date: 2024–04
  3. By: Caccia, Enea; Tapking, Jens; Vlassopoulos, Thomas
    Abstract: This paper discusses the impact that a retail central bank digital currency (CBDC) could have on the implementation of monetary policy. Monetary policy implementation could be affected if the introduction of the retail CBDC changes the volume of commercial bank deposits held by customers, which would, in turn, affect central bank reserves. While it is often assumed that customer deposits would decrease if a CBDC was introduced, we provide arguments why this is by no means clear cut and deposits could even increase. If bank deposits do decrease, banks would need to draw on, and therefore reduce, their central bank reserve holdings. Moreover, uncertainty as to the timing and extent of any conversions of deposits into CBDC might prompt banks to scale up their demand for central bank reserves in order to hold larger precautionary buffers. Consequently, central banks might need to adjust their reserve supply and other features of their monetary policy implementation, depending, for example, on whether they use a floor or a corridor system for monetary policy implementation. In the specific case of the digital euro, the features already envisaged for its design would make it possible to minimise the risk of negative consequences for monetary policy implementation. JEL Classification: E41, E42, E43, E52, E58, G21
    Keywords: central bank digital currency, central bank reserves, monetary policy implementation
    Date: 2024–04
  4. By: Sepp, Tim Florian; Israel, Karl-Friedrich; Treitz, Benjamin; Hartl, Tom
    Abstract: This paper examines the heterogeneous effects of the ECB's monetary policies on the resilience of the German banking system between 1999 to 2022. We distinguish between the main bank types in Germany: Large Banks, Regional Banks, Sparkassen, Landesbanken and Credit Unions. We proxy bank-type resilience by a zscore measure. We use structural monetary policy shocks relying on high-frequency identification methods. Unconventional monetary policy shocks are decomposed into three parts: timing shocks, forward guidance, and quantitative easing. We estimate the resilience of German bank types in response to expansionary monetary policy shocks by producing impulse response functions through local projections. Conventional monetary easing is associated with weakened resilience for all bank types. Unconventional monetary policies have heterogeneous effects on German bank types. Shocks to short-term interest rate expectations (i.e. timing shocks) are associated with increasing resilience of Large Banks, Regional Banks and Landesbanken, but with decreasing resilience of the others. Forward guidance only has a positive impact on the resilience of Sparkassen. Large-scale asset purchases through quantitative easing tend to the increase resilience of Large Banks and Sparkassen, but decrease the resilience of Regional Banks, Credit Unions and Landesbanken, in both, the short and long run.
    Keywords: Resilience, Financial Stability, Monetary Policy, Unconventional Monetary Policy, Banking System, Germany
    JEL: E42 E52 G21 M41
    Date: 2024
  5. By: Christensen, Jens H. E. (Federal Reserve Bank of San Francisco,); Zhang, Xin (Research Department, Central Bank of Sweden)
    Abstract: We assess the impact of large-scale asset purchases, commonly known as quantitative easing (QE), conducted by Sveriges Riksbank and the European Central Bank (ECB) on bond risk premia in the Swedish government bond market. Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond- specific safety premia, we find that Sveriges Riksbank's bond purchases raised inflation and short-rate expectations, lowered nominal and real term premia and inflation risk premia, and increased nominal bond safety premia, suggestive of signaling, portfolio rebalance, and safe asset scarcity effects. Furthermore, we document spillover effects of ECB's QE programs on Swedish bond markets that are similar to the Swedish QE effects only after controlling for exchange rate fluctuations, highlighting the importance of exchange rate dynamics in the transmission of QE spillover effects.
    Keywords: term structure modeling; nancial market frictions; safety premium; unconventional monetary policy
    JEL: C32 E43 E52 E58 F41 F42 G12
    Date: 2024–04–01
  6. By: Nocciola, Luca; Zamora-Pérez, Alejandro
    Abstract: We shed light on the demand for a central bank digital currency (CBDC) as a means of payment, based on survey payment data. We provide a quantitative framework to assess transactional demand for CBDC at the point of sale, accommodating a wide range of design choices. We develop a structural model of payment means adoption and usage and estimate CBDC demand based on individuals’ preferences for payment method attributes. We disentangle the friction potentially associated to CBDC adoption, assessing two of its potential drivers: information frictions and gradual diffusion of digital payment methods. We find that modelling adoption is key to understanding CBDC demand. Finally, we show that optimal CBDC design, information campaigns, and network effects can substantially boost demand. JEL Classification: E41, E42, E47
    Keywords: CBDC, money demand, payments, Random utility, structural model
    Date: 2024–04
  7. By: Frantisek Brazdik; Tatiana Keseliova; Karel Musil; Radek Snobl; Jan Solc; Stanislav Tvrz; Jan Zacek
    Abstract: We investigate inflation expectations and their measures in the context of the 2022 inflation surge in the Czech Republic. Using data and econometric analyses, we explore how inflation expectations are formed and how they may affect inflation developments. To capture the overall trend of inflation expectations in the Czech economy, we develop a Common Inflation Expectations index. Additionally, we extend the CNB's g3+ core projection model by incorporating endogenous expectation premiums that reflect elevated inflation expectations. Utilizing the Common Inflation Expectations index and the modified model, we construct a simulation that provides policy-relevant outcomes when addressing high inflation. By presenting the simulation, we emphasize the importance and relevance of our research for practical policymaking.
    Keywords: Forecasting, inflation, inflation expectations, inflation expectations index, structural modelling
    JEL: C32 C50 E31 E37 E50
    Date: 2024–04
  8. By: Hassan Afrouzi; Marina Halac; Kenneth S. Rogoff; Pierre Yared
    Abstract: We present a simple long-run aggregate demand and supply framework for evaluating long-run inflation. The framework illustrates how exogenous economic and political economy factors generate central bank pressures that can impact long-run inflation as well as transitions between steady states. We use the analysis to provide a fresh perspective on the forces that drove global inflation downward over the past four decades. We argue that for inflation to remain low and stable in the future, political economy factors, such as strengthened central bank independence or more credible public debt policy, would need to offset the global economic pressures now pushing average long-run inflation upwards.
    JEL: E5 E6
    Date: 2024–04
  9. By: Nic Spearman
    Abstract: Central banks world-wide are working to future-proof their role in a rapidly changing digital world. In this context, retail central bank digital currency (rCBDC) presents a potential tool for addressing key policy challenges going forward. These include monetary policy transmission, financial stability, payment system inefficiencies, and financial market failures. Addressing these challenges as well as improving integration with global payment systems are central to the SARBs strategic focus areas. Various rCBDC projects are in experimental stage working to assess policy uses and potential designs. These provide useful case studies for the SARB to understand the need for rCBDC and its potential policy spill-over effects. Understanding these impacts is important for ensuring the SARBs capacity to respond timeously and appropriately to the rapidly changing digital payment environment. For policy makers concerned by the prospect of currency substitution, a key economic lesson is that issuing rCBDC will not arrest currency substitution as it does not address the underlying economic factors that drive substitution.
    Date: 2022–06–24
  10. By: Didarul Islam; Mohammad Abdullah Al Faisal
    Abstract: This study examines the factors influencing the short-term real effective exchange rate (REER) in Uruguay by applying an extended Mundell-Fleming model. Analyzing the impact of the US lending rate (USLR), money supply (M2), inflation (CPI), and the world interest rate (WIR), the paper uses a linear regression model with Newey-West standard errors. Key findings reveal that an increase in the USLR, CPI, and M2 is associated with a depreciation of the REER. In contrast, WIR shows no significant impact. These findings are consistent with the theoretical expectations of the Mundell-Fleming model regarding open economies under floating exchange rates. Therefore, authorities should tighten monetary policy, control inflation, adjust fiscal strategies, and boost exports in response to Peso depreciation.
    Date: 2024–03
  11. By: Joshua Aizenman; Donghyun Park; Irfan A. Qureshi; Gazi Salah Uddin; Jamel Saadaoui
    Abstract: We investigate the determinants of emerging markets performance during five U.S. Federal Reserve monetary tightening and easing cycles during 2004–2023. We study how macroeconomic and institutional conditions of an Emerging Market (EM) at the beginning of a cycle explain EM resilience during each cycle. More specifically, our baseline cross-sectional regressions examine how those conditions affect three measures of resilience, namely bilateral exchange rate against the USD, exchange rate market pressure, and country-specific Morgan Stanley Capital International index (MSCI). We then stack the five cross-sections to build a panel database to investigate potential asymmetry between tightening versus easing cycles. Our evidence indicates that macroeconomic and institutional variables are associated with EM performance, determinants of resilience differ during tightening versus easing cycles, and institutions matter more during difficult times. Our specific findings are largely consistent with economic intuition. For instance, we find that current account balance, international reserves, and inflation are all important determinants of EM resilience.
    JEL: E58 F32 F36 F44 G12
    Date: 2024–04
  12. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates the inflation effects of oil price expectations shocks constructed as functional shocks, i.e. as shifts in the entire oil futures term structure (both standard and risk-adjusted). The latter are then included in a vector autoregressive model with exogenous variables (VARX) to examine the US case. Counterfactual analysis is also carried out to investigate second-round effects on inflation through the inflation expectations channel. These are found to be significant, in contrast to earlier studies based on standard oil price shocks. Additional nonlinear local projections including a shock decomposition exercise show that inflation and inflation expectations are primarily driven by changes in the curvature (level and slope) factor when the latter are anchored (unanchored). These findings provide useful information to policymakers concerning the impact of oil price expectations on inflation and inflation expectations.
    Keywords: functional shocks, oil price expectations, inflation anchoring, counterfactual analysis
    JEL: C32 E31 Q43
    Date: 2024
  13. By: Srichander Ramaswamy (The South East Asian Central Banks (SEACEN) Research and Training Centre)
    Abstract: The view that cryptocurrencies can be a substitute for fiat currencies in an interconnected and digitised world appears to be gaining some traction. Such views are reinforced by the high fee banks charge on cross-border money transfers and for certain other financial services. The belief that cryptocurrencies will define the future of money is entrenched among millennials, and this belief has been driving up the demand for cryptocurrencies. Stablecoins in this ecosystem has taken on the role of the unit of account for crypto assets and is instrumental in providing liquidity as well as in facilitating trading of crypto assets. To play this role, stablecoins are being extensively used as collateral in crypto transactions with trading platforms holding such collateral in omnibus accounts. The global regulatory community is taking note of this and has expressed concerns that as the market for stablecoins and cryptocurrencies grow, potential risks to the broader financial system from runs on stablecoins can be damaging. This paper reviews these developments and provides some suggestions for policy drawing on the regulatory debates and initiatives from standard setters to address the risks identified.
    Keywords: Central banks, collateral, cryptocurrencies, financial stability, regulation, stablecoins
    JEL: E42 E58 G21 G23 G28
    Date: 2024–04
  14. By: Morteza Ghomi (Banco de España); Samuel Hurtado (Banco de España); José Manuel Montero (Banco de España)
    Abstract: The recent inflationary episode is the result of a series of shocks that have taken place over a short period of time. In this article we use the Blanchard and Bernanke (2023) model as an analytical framework to assess the relative importance of different factors over the course of this episode. Two main conclusions can be drawn from our results. First, supply-side shocks (related to energy, food and bottlenecks) have played a major role in recent inflation developments in the Spanish economy. Second, now that these supply shocks have been absorbed, labour market tightness is becoming more important as a determinant of wage inflation, with a pass-through to prices that has been limited so far but that, if it intensifies, could generate risks with a higher degree of persistence.
    Keywords: inflation, wages, inflation expectations, labour market
    JEL: E31 E32 J30
    Date: 2024–03
  15. By: Ali Dogdu; Murad Kayacan
    Abstract: In this study, we aimed to examine the effect of VAT revenues and Deposit Interest Rates on Inflation in Turkey between 1985-2022. Within the framework of econometric analysis of the obtained data, the analysis was carried out using ADF unit root test, Johansen Co-Integration Test, Error Terms and VECM (Vector Error Correction Model) models. According to the analysis results, it was understood that the data were stationary at the I(I) level, it was determined that there was a cointegrated relationship between them in the long term, and by estimating the error term, causality findings were determined within the framework of VECM analysis. According to the causality results of the Wald Test; causality is found from Deposit Interest Rate to VAT and Inflation, and from Inflation to VAT and Deposit Interest Rate (bidirectional), while causality is also found from VAT to Inflation and Deposit Interest Rates.
    Date: 2024–04
  16. By: Daniel Ofori-Sasu (University of Ghana Business School); Elikplimi Komla Agbloyor (University of Ghana Business School); Dennis Nsafoah (Niagara University); Simplice A. Asongu (Johannesburg, South Africa)
    Abstract: This study examines the effect of regulatory independence of the central bank in shaping the impact of electoral cycles on bank lending behaviour in Africa. It employs the dynamic system Generalized Method of Moments (SGMM) Two-Step estimator for a panel dataset of 54 African countries over the period, 2004-2022. The study found that banks lend substantially higher during election years, and reduce lending patterns thereafter. The study shows that countries that enforce monetary policy autonomy of the central bank induce a negative impact on bank lending behaviour while those that apply strong macro-prudential independent action and central bank independence reduce lending in the long term. The study provides evidence to support that regulatory independence of the central bank dampens the positive effect of elections on bank lending around election years while they amplify the reductive effects on bank lending after election periods. There is a wake-up call for countries with weak independent central bank regulatory policy to strengthen their independent regulatory policy frameworks and political institutions. This will enable them better strategize to yield a desirable outcome of bank lending to the real economy during election years.
    Keywords: Political Economy; Political Credit Cycles, Electoral Cycle; Central Bank Regulatory Independence; Bank lending Behaviour
    JEL: D7 D72 G2 G3 E3 E5 E61 G21 L10 L51 M21 P16 P26
    Date: 2024–01
  17. By: Susan Knox; Palesa Mnguni; Pieter Pienaar; Witness Simbanegavi
    Abstract: Over the past two years, both global and domestic producer prices have risen markedly. This has raised concerns that the high producer inflation may eventually be passed onto consumer prices. This note compares producer and consumer price indices and the implications for pass-through of PPI to CPI inflation. We find strong co-movement between final PPI and goods CPI, but somewhat weaker co-movement with headline CPI. This suggests that some pass-through should be expected, particularly for the closely related baskets such as final PPI and goods CPI. However, the material differences between the indices, together with competition considerations, will serve to moderate pass through.
    Date: 2022–06–24
  18. By: Theo Janse van Rensburg; Erik Visser
    Abstract: The surge in commodity prices is strongly correlated with upward surprises in global inflation outcomes and a major driver of emerging market exchange rate appreciation, including the rand. For South Africa, the improvement in the terms of trade have significantly improved the current account, boosted real incomes and welfare as well as the fiscus, and aided the recovery from the COVID-19 pandemic. Higher commodity prices have increased the cyclical fiscal revenue component to nearly 5% of GDP in 2020/21 thereby almost fully offsetting the negative effects of the conventionally-measured increase in the output gap (caused by lower consumption and production). If the revenue boost from the terms of trade unwinds before other spending and growth have increased (and the output gap has closed), fiscal deficits will increase sharply. We estimate an income gap and use a command GDP concept to show that demand may be less suppressed than suggested by the output gap. Nonetheless, given the size of the boost to income, factors such as higher taxes and more saving lean against higher spending. In these conditions, monetary policy may have limited impact.
    Date: 2022–06–24
  19. By: Tersoo David Iorngurum (Charles University, Prague, Czech Republic)
    Abstract: The interest rate pass-through represents a vital transmission mechanism between the financial sector and the real economy. Nonetheless, the empirical literature offers no consensus regarding the direction and extent of asymmetry in this pass-through. In this paper, I systematically review the empirical literature using various contemporary meta-analytic techniques to test for publication bias and establish consensus for the conflicting study outcomes. I find evidence of publication bias. Beyond publication bias, the magnitude of the reported pass-through declines relative to the simple literature average, but substantial asymmetry remains. Precisely, bank lending rates appear to be a lot more responsive to increases than decreases in monetary policy interest rates. Furthermore, I identify the factors responsible for diverse study outcomes. These include study characteristics, asymmetry, and macrofinancial variables. Concerning study characteristics, results differ due to differences in data frequency, data source, the researched period, study quality, author affiliation, and estimation context. Concerning macrofinancial factors, results differ due to differences in openness to foreign direct investment inflows, openness to trade, the inflationary environment, and economic development status. The pass-through is particularly strong in countries more open to foreign direct investment inflows and developed economies but relatively weak for countries more open to import trade and countries with a high inflationary environment. Finally, I model the interest rate pass-through based on the best practices in the literature. On average, the short-run pass-through to bank lending rates is about 49.7% for a policy rate hike and about 29.7% for a policy rate cut. On the other hand, the long-run pass-throughs are about 69.6% and 46.6%, respectively.
    Keywords: Interest rate pass-through, asymmetry, meta-analysis
    JEL: E43
    Date: 2024–04
  20. By: Ruth A. Judson
    Abstract: In principle, physical currency should be disappearing: payments are increasingly electronic, with new technologies emerging rapidly, and governments increasingly restrict large-denomination notes as a way to reduce crime and tax evasion. Nonetheless, demand for U.S. banknotes continues to grow, and consistently increases at times of crisis both within and outside the United States because dollar banknotes remain a desirable store of value and medium of exchange when local currency or bank deposits are inferior. Most recently, the COVID crisis resulted in historic increases in currency demand. After allowing for the effect of crises, U.S. banknote demand appears to be driven by the usual factors determining money demand, with no discernible downward trend. In this work, I review developments in demand for U.S. currency over the past few decades with a focus on developments since early 2020. In addition, I revisit the question of international demand: I present the raw data available for measuring international banknote flows and updates on indirect methods of estimating the stock of currency held abroad. These methods continue to indicate that a large share of U.S. currency is held abroad, especially in the $100 denomination. As shown earlier (Judson 2012, 2017), once a country or region begins using dollars, subsequent crises result in additional inflows: the dominant sources of international demand over recent decades are the countries and regions that were already heavy dollar users in the early to mid-1990s. While international demand for U.S. currency eased during the early 2000s as financial conditions improved, the abrupt return to strong international demand that began with the collapse of Lehman Brothers in 2008 has not slowed and reached new heights over 2020 and 2021. In contrast, however, the growth rate of demand for smaller denominations is slowing, perhaps indicating the first signs of declining domestic cash demand.
    Keywords: Currency; Banknotes; Dollarization; Crisis
    JEL: C82 E40 E49
    Date: 2024–03–25
  21. By: Marco Garofalo; Giovanni Rosso; Roger Vicquéry
    Abstract: We explore an episode of aggregate transition to dominant currency pricing in a large developed economy, relying on transaction-level data on the universe of UK trade between 2010 and 2022. Until 2016, the majority of UK non-EU exports were invoiced in British pounds, the ”producer” currency. However, in the aftermath of the June 2016 Brexit referendum and the subsequent depreciation of the pound, the share of non-EU UK exports invoiced in pounds started to sharply decrease – by more than 20 percentage points. This was mirrored by an increase of similar magnitude in the share of US dollar invoicing, which by 2019 overtook the pound as the main non-EU export invoicing currency. Using shift-share and event-study identification strategies, we show that large foreign-exchange movements can generate a transition in invoicing choices for firms with low levels of operational hedging, that is whose exports are not denominated in the same currency as their import. We find that that this currency-mismatch valuation channel accounts for most of the transition away from producer currency pricing, above and beyond effects from strategic complementarities and market power. Finally, we show that this shift in export pricing paradigm has important aggregate consequences for export pass-through and the allocative effects of price rigidities. Exports exhibit significantly higher elasticity to USD exchange-rate movements after the Brexit referendum: a USD dollar appreciation depresses demand for exports by twice as much than before this ‘dominant currency pricing transition’.
    Date: 2024–03–21
  22. By: Peter Skott
    Abstract: Notions of conflict inflation have been central to neo-Marxian and post-Keynesian economics. There are tensions, however, within the Marxian/post-Keynesian camp. Post-Keynesians emphasize weak feedback effects between price and wage inflation, thereby preserving the importance of aggregate demand in the determination of output and employment in the medium and long run. Like Kalecki (1943), Marxists typically suggest, on the contrary, that if unemployment is kept low, cumulative increases in workers. power and militancy imply severe limitations of aggregate demand policy in the long run. The paper discusses these rival perspectives and their implications, suggesting that (i) valid Marxian concerns are likely to derail ambitious reform programs that rely on fiscal expansion, (ii) Kalecki’s analysis failed to recognize the centrality of inflation for aggregate demand policy and the multidimensional character of class conflict, and (iii) rather than focus on the wage struggle, labor movements may benefit from prioritizing political and institutional change.
    Keywords: wage aspirations, fairness norms, worker militancy, hysteresis, welfare state, de-commodifcation
    JEL: E31
    Date: 2024–04
  23. By: Tomohiro Hirano; Alexis Akira Toda
    Abstract: This paper provides a detailed analysis of the local determinacy of monetary and non-monetary steady states in Tirole (1985)'s classical two-period overlapping generations model with capital and production. We show that the sufficient condition for local determinacy in endowment economies provided by Scheinkman (1980) does not generalize to models with production: there are robust examples with arbitrary utility functions in which the non-monetary steady state is locally determinate or indeterminate. In contrast, the monetary steady state is locally determinate under fairly weak conditions.
    Date: 2024–03
  24. By: Otaviano Canuto; Xiaofeng Wang
    Abstract: The surprising victory of Javier Milei, the unconventional ‘anarcho-capitalist’ candidate, in the August primaries ahead of Argentina’s October 2023 general election, can be largely credited to his commitment to dollarize the Argentine economy, a move perceived as the ultimate solution to bring an end to the nation's economic turmoil. The potential shift from the local currency to the dollar has sparked concerns about Argentina's bilateral currency swap line with China. This swap line plays a crucial role in their bilateral relations and has also served as a means for Argentina to fulfill its debt obligations to the International Monetary Fund. The swap line is seen as a key element in preventing Argentina from defaulting on its IMF obligations, which is vital for both its economic and international financial stability.
    Date: 2023–10
  25. By: Stefanie Stantcheva
    Abstract: This paper provides new evidence on a long-standing question asked by Shiller (1997): Why do we dislike inflation? I conducted two surveys on representative samples of the US population to elicit people’s perceptions about the impacts of inflation and their reactions to it. The predominant reason for people’s aversion to inflation is the widespread belief that it diminishes their buying power, as neither personal nor general wage increases seem to match the pace of rising prices. As a result, respondents report having to make costly adjustments in their budgets and behaviors, especially among lower-income groups. Inflation also provokes stress, emotional responses, and a sense of inequity, as the wages of high-income individuals are perceived to grow more rapidly amidst inflation. Many respondents believe that firms have considerable discretion in setting wages, opting not to raise them in order to boost profits, rather than being compelled by market dynamics. The potential positive associations of inflation, such as with reduced unemployment or enhanced economic activity, are typically not recognized by respondents. Inflation ranks high in priority among various economic and social issues, with respondents blaming the government and businesses for it. I also highlight a substantial polarization in attitudes towards inflation along partisan lines, as well as across income groups.
    JEL: E12 E40 E50 E70 G5 P43
    Date: 2024–04
  26. By: Aurélien Goutsmedt (UCL - Université Catholique de Louvain = Catholic University of Louvain, FNRS - Fonds National de la Recherche Scientifique [Bruxelles]); Francesco Sergi (UPE - Université Paris-Est, LIPHA - Laboratoire Interdisciplinaire d'étude du Politique Hannah Arendt Paris-Est - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel); Béatrice Cherrier (ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique, X - École polytechnique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); François Claveau (UdeS - Université de Sherbrooke, CIRST - Centre interuniversitaire de recherche sur la science et la technologie - UdeM - Université de Montréal - UQAM - Université du Québec à Montréal = University of Québec in Montréal); Clément Fontan (Université Saint-Louis - Bruxelles, UCL - Université Catholique de Louvain = Catholic University of Louvain); Juan Acosta (Univalle - Universidad del Valle [Cali])
    Abstract: Why do policymakers and economists within a policymaking institution choose to throw away a model and to develop an alternative one? Why do they choose to stick to an existing model? This article contributes to the literature on the history and philosophy of modelling by answering these questions. It delves into the dynamics of persistence, change, and building practices of macroeconomic modelling, using the case of forecasting models at the Bank of England (1974-2014). Based on archives and interviews, we document the multiple factors at play in model building and model change. We identify three sets of factors: the agency of modellers, institutional factors, and the material factor. Our investigation shows the diversity of explanations behind the decision to change a model: each time, model replacement resulted from a different combination of the three types of factors.
    Keywords: Central bank, Forecasting, Macroeconomic modeling, Bank of England, Models
    Date: 2024–01–31
  27. By: Fumiko Hayashi; Aditi Routh
    Abstract: Cryptocurrency owners without sufficient financial literacy and risk tolerance may be financially vulnerable, as the cryptocurrency market is highly volatile and lacks consumer protections. Our study divides cryptocurrency owners into three groups based on their purpose for holding cryptocurrencies—for investment only (investors), for transactions only (transactors), and for a mix of investment and transactions (mix users)—and examines how each group correlates with financial literacy and risk tolerance compared to consumers who do not own cryptocurrencies (nonowners). Using the 2022 Survey of Household Economics and Decisionmaking, we find that investors and mix users are significantly or moderately more financially literate and risk tolerant than nonowners, but transactors are less financially literate and slightly more risk tolerant than nonowners. We also find that the three groups of cryptocurrency owners vary by demographic and financial characteristics. Our findings highlight that transactors could be particularly financially vulnerable in the absence of consumer protections in the cryptocurrency market.
    Keywords: cryptocurrency; financial literacy; risk
    JEL: D14 D91 E42
    Date: 2024–03–19

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