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on Monetary Economics |
| By: | Lilian Muchimba (Bank of Zambia); Mimoza Shabani (University of East London); Alexis Stenfors (University of Portsmouth); Jan Toporowski (University of Portsmouth) |
| Abstract: | The paper adopts a TVP-VAR methodology to investigate the dynamics of inflation components for three countries: the UK, the US and Japan from 1993 to 2023. We deconstruct the CPI into components to examine the actual price changes that make up the CPI and the degree to which changes in those prices influence each other. By doing so, we uncover the connectedness and spillovers between domestic inflation components. We find that whilst connectedness of price changes has been moderate over the last three decades it has increased significantly since the CPI started to soar in late 2021, suggesting the existence of a spillover effect among price-setting firms in the economy. Furthermore, our empirical evidence shows that the transmission mechanism across domestic CPI components varies significantly across countries and over time. From a monetary policy perspective, the findings suggest that a signalling process among consumer market producers complements the signalling by central banks in relation to inflation. Lastly, the cross-country variations over time imply that “no size fits all”, thus emphasizing the importance of domestic spillovers. |
| Keywords: | Consumer Prices, Dynamic Connectedness, Inflation, Monetary policy, Signalling, TVP-VAR |
| JEL: | C81 E31 E52 D43 |
| Date: | 2024–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:pbs:ecofin:2024-04&r=mon |
| By: | Hassan Afrouzi; Alexander Dietrich; Kristian Myrseth; Romanos Priftis; Raphael Schoenle |
| Abstract: | We document novel survey-based facts on preferred long-run inflation rates among U.S. consumers. Consumers on average prefer a 0.20% annual inflation rate, considerably below the Federal Reserve’s 2% target. Inflation preferences not only correlate with demographic and socioeconomic characteristics, but also with economic reasoning. A randomized control trial reveals that two narratives based on economic models—describing how inflation lowers the real value of wages as well as money holdings—affect inflation preferences. While our results can inform the design of central bank communication on inflation targets, they also raise questions about the alignment between such targets and consumer preferences. |
| JEL: | E58 E71 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32379&r=mon |
| By: | Natalia ANDRIES (ERUDITE, Université Paris-Est); Steve BILLON (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | This paper theoretically investigates the effect of bank cost-efficiency on the transmission of monetary policy impulses to bank lending rates. In a monopolistic competition setting that displays increasing marginal costs, we show that the distortion of the interest rate pass-through depends on the nature of the bank cost-efficiency shock. If banks increase their cost-efficiency on loan activities, the monetary policy transmission is strengthened. Instead, if banks experience an improvement in their cost-efficiency on deposit activities, the interest rate pass-through is weakened. |
| Keywords: | Bank cost-efficiency; Bank interest rates; Monetary policy transmission; Interest rate pass-through; Bank imperfect competition |
| JEL: | E43 E52 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2024-04&r=mon |
| By: | Randrianarisoa, Radoniaina |
| Abstract: | This article presents an essay of a macroeconomic modeling dedicated on monetary policy, a Quarterly Projection Model for the case of Madagascar. Initially, we apply the canonical model, developed by Berg-Karam-Laxton (2006a, b), to the data of the Malagasy economy. Subsequently, we propose an extension of this version to further incorporate features of this economy. The results show simulations that closely replicate the stylized facts of the Malagasy economy and highlight the mechanisms of monetary policy transmission. This tool could be useful to the Monetary Authority of this country in its conduct of monetary policy. |
| Keywords: | monetary policy, inflation, core inflation, output gap, inflation targeting, quarterly projection model |
| JEL: | E52 |
| Date: | 2024–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120678&r=mon |
| By: | Nordine Abidi; Mehdi El Herradi; Boriana Yontcheva; Ananta Dua |
| Abstract: | This paper investigates the effects of climate shocks on inflation and monetary policy in the Middle East and Central Asia (ME&CA) region. We first introduce a theoretical model to understand the impact of climate risks on headline and food inflation. In particular, the model shows how climate shocks could affect the path of policy rates through food prices. We then use local projections to estimate the impact of climate shocks on headline and food inflation. The results show that price stability is more easily achievable under positive climate conditions. Overall, our findings shed new light on the importance of considering climate-related supply shocks when designing monetary policy, particularly in countries where food makes up a significant part of the CPI-basket. |
| Keywords: | Monetary policy; inflation; climate change |
| Date: | 2024–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/090&r=mon |
| By: | Paul De Grauwe; Yuemei Ji |
| Abstract: | In a world of radical uncertainty the frequency distributions of economic variables deviate from the normal distribution and typically exhibit fat tails. We show that this feature is obtained in simple models where agents have cognitive limitations and fail to understand the underlying model. Although the model is simple, we obtain great complexity. We analyse the implications for monetary policy. We show that in such models the central bank bears a much greater responsibility to stabilize an otherwise unstable system than in mainstream models that assume Rational Expectations. We also question the use of impulse responses to exogenous shocks when the distribution of these impulse responses is not normal. |
| Keywords: | radical uncertainty, monetary policy |
| JEL: | E52 E58 E70 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11068&r=mon |
| By: | António Rua; Nuno Lourenço; João Quelhas |
| Abstract: | We propose a novel tool to gauge price pressures resorting to circular statistics, the so-called inflation compass. We show that it provides a reliable indication on inflationary pressures in the euro area by focusing on key episodes of high and low inflation since the monetary union inception. Unlike most alternative measures of underlying inflation, the inflation compass does not exclude any subitems of inflation, ensuring that all disaggregated information is taken on board. Moreover, it is not subject to revisions, providing policymakers with real-time signals about the course of underlying inflation, while being easily understood and visually appealing. We also provide evidence of the usefulness of the inflation compass to forecast overall inflation up to 36 months ahead, even during periods of increased turbulence, such as those marked by the COVID-19 pandemic or the recent inflation surge. Our findings indicate that the inflation compass surpasses other widely used measures of underlying inflation for the euro area, leading to statistically significant improvements in forecast accuracy. Lastly, we show that our approach can handle large-dimensional data by leveraging on finer product-level and country-level data. In such environment, the inflation compass still exhibits higher accuracy, underscoring its robustness and reliability. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202317&r=mon |
| By: | Menzie D. Chinn; Jeffrey A. Frankel; Hiro Ito |
| Abstract: | We begin by examining determinants of aggregate foreign exchange reserve holdings by central banks (size of issuing country’s economy and financial markets, ability of the currency to hold value, and inertia). But understanding the determination of reserve holdings probably requires going beyond the aggregate numbers, instead observing individual central bank behavior, including characteristics of the holding country (bilateral trade with the issuing country, bilateral currency peg, and proxies for bilateral exposure to sanctions), in addition to the characteristics of the reserve currency issuer. On a currency-by-currency basis, US dollar holdings are somewhat well explained by several issuer characteristics; but the other currencies are less successfully explained. It may be that the results from currency-by-currency estimation are impaired by insufficient sample size. This consideration offers a motivation for pooling the data across the major currencies and imposing the constraints that reserve holdings are determined in the same way for each currency. In this setting, most economic determinants enter with significance: economic size as measured by GDP, size of financial markets as measured by foreign exchange turnover, bilateral currency peg, and bilateral trade share. However, geopolitical variables (bilateral alliance, bilateral sanctions) usually do not enter with significance. |
| JEL: | F33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32387&r=mon |
| By: | William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Hyun Park (Department of Economics, Valparaiso University, Valparaiso, IN 46383, USA) |
| Abstract: | We use the New-Keynesian DSGE framework and VAR to investigate the usefulness and relevancy of monetary services, augmented to include credit card transaction services. We use the new credit-card-augmented Divisia monetary aggregates in the models to further the existing research on their usefulness and relevancy. In this research, we compare three different monetary aggregates within the New-Keynesian framework: (1) the aggregation theoretic "true" monetary aggregate, (2) the credit-card-augmented Divisia monetary aggregate, and (3) the simple sum monetary aggregate. We acquire the following primary results. (1) The credit-card-augmented Divisia monetary aggregate tracks the theoretical (true) monetary aggregate, while simple-sum does not. Although this result would be expected from the theory in classical economic models, the result is not an immediate implication of the theory in New-Keynesian models and therefore needs empirical confirmation. (2) Under the recursive VAR framework, the credit-card-augmented Divisia monetary aggregate serves as a preferable monetary policy indicator compared to the traditional federal funds rate. (3) On theoretical grounds, we find that the separability condition for existence of a monetary aggregator function could fail, if credit card deferred payment services were excluded from the monetary services block, unless all markets are perfect. |
| Keywords: | Credit-card-augmented Divisia monetary aggregates, New-Keynesian DSGE, credit card services, VAR. |
| JEL: | E12 E41 E51 E52 E58 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:202408&r=mon |
| By: | Rohan Kekre; Moritz Lenel; Federico Mainardi |
| Abstract: | We develop a segmented markets model which rationalizes the effects of monetary policy on the term structure of interest rates. When arbitrageurs’ portfolio features positive duration, an unexpected rise in the short rate lowers their wealth and raises term premia. A calibration to the U.S. economy accounts for the transmission of monetary shocks to long rates. We discuss the additional implications of our framework for state-dependence in policy transmission, the volatility and slope of the yield curve, and trends in term premia accompanying trends in the natural rate. |
| JEL: | E44 E63 G12 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32324&r=mon |
| By: | Chris Becker (Reserve Bank of Australia); Anny Francis (Reserve Bank of Australia); Calebe de Roure (Reserve Bank of Australia); Brendan Wilson (Reserve Bank of Australia) |
| Abstract: | In Australia repurchase (repo) obligations are traded bilaterally 'over-the-counter' between parties, rather than on an exchange. As a result, it is difficult to obtain quotes of executable prices, trading volumes, and related data that are representative of the market. Market conditions are therefore not easy to assess and often dependent on anecdotal evidence. Over the years, the Reserve Bank of Australia has published data and analysis of the repo market by providing indirect perspectives using data from its own open market operations that are conducted using repos. This paper contributes to this work. The Reserve Bank conducts open market operations to manage liquidity in the interbank market, provide settlement balances for the smooth functioning of the payments system, and for the implementation of monetary policy. Repos are an integral part of these operations. The eligible private sector counterparties in these auctions have a variety of reasons for participating. We arrange their bids in an ascending order in a number of distinct phases so that they can be used to make inferences about the demand for repo and hence market operations. Several insights allow us to better understand the dynamics underpinning the repo market. The findings mainly relate to the period prior to the implementation of unconventional monetary policies in March 2020. |
| Keywords: | monetary policy; repurchase agreement; liquidity management; open market operations; money market |
| JEL: | E41 E42 E43 E52 E58 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2024-03&r=mon |
| By: | Joris Wauters (Economics and Research Department, National Bank of Belgium); Zivile Zekaite (Irish Economic Analysis Division, Central Bank of Ireland); Garo Garabedian (Monetary Policy Division, Central Bank of Ireland) |
| Abstract: | The ECB concluded its strategy review in 2021 with a plan to include owner-occupied housing (OOH) costs in its inflation measure in the future. This paper uses the Bundesbank’s online household panel to study how household expectations would react to this change. We conducted a survey experiment with different information treatments and compared long-run expectations for euro area overall inflation, interest rates, and OOH inflation. Long-run expectations are typically higher for OOH inflation than overall inflation, and both are unanchored from the ECB’s target at the time of the survey. We find significantly higher inflation expectations under the treatment where OOH costs are assumed to be fully included in the inflation measure. This information effect is heterogeneous as, among others, homeowners and respondents with low trust in the ECB react more strongly. However, inflation expectations remain stable when information about past OOH inflation is also given. Careful communication design could thus prevent expectations from becoming more de-anchored. |
| Keywords: | Owner-occupied housing costs, survey experiment, inflation measurement, inflation expectations, ECB |
| JEL: | D83 D84 E31 E50 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202405-449&r=mon |
| By: | Francesca Carapella; Jin-Wook Chang; Sebastian Infante; Melissa Leistra; Arazi Lubis; Alexandros Vardoulakis |
| Abstract: | A Central Bank Digital Currency (CBDC) is a form of digital money that is denominated in the national unit of account, constitutes a direct liability of the central bank, and can be distinguished from other central bank liabilities. We examine the positive and negative implications for financial stability of a CBDC under different design options. We base our analysis on the lessons derived from historical case studies as well as on analytical frameworks useful to characterize the mechanisms through which a CBDC can affect financial stability. We further discuss various policy tools that can be employed to mitigate financial stability risks. |
| Keywords: | CBDC; Financial stability; Runs; Stablecoins; Central bank liabilities; Regulation |
| JEL: | E40 E50 G01 G21 G23 G28 |
| Date: | 2024–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-21&r=mon |
| By: | Karsten O. Chipeniuk (Economics Department, Reserve Bank of New Zealand); Eric M. Leeper (Department of Economics, University of Virginia); Todd B. Walker (Department of Economics, Indiana University) |
| Abstract: | We consider fiscal and monetary policy interactions in the continuous-time HANK framework. We find that heterogeneity fundamentally alters the way in which monetary policy shocks propagate in equilibrium. Fiscal shocks have inflationary consequences even when policy parameters are consistent with accommodating (passive) fiscal policy. By eliminating income effects through a complex transfers process, monetary policy can once again regain control of inflation. However, meaningful heterogeneity or heterogeneity in which a representative-agent approximation is poor, requires a complex set of transfers that do not resemble reality. With a realistic calibration for the distribution of wealth, fiscal policy will always impinge on inflation regardless of policy parameters. We thus conclude that monetary policy is fiscal policy according to HANK. |
| Keywords: | Heterogeneous Agents, Monetary and Fiscal Policy Interactions |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2024004&r=mon |
| By: | Jiawen Luo (School of Business Administration, South China University of Technology, Guangzhou 510640, China); Shengjie Fu (School of Business Administration, South China University of Technology, Guangzhou 510640, China); Oguzhan Cepni (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Ostim Technical University, Ankara, Turkiye); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | This study examines the impact of climate-related risks on the inflation rates of the United States, focusing on the overall Consumer Price Index (CPI) and its significant components, namely food and beverages and housing inflation. Employing quantile regression models and a comprehensive dataset spanning from January 1985 to September 2022, we analyze five specific climate risk factors alongside traditional macroeconomic predictors. Our findings indicate that models incorporating individual climate risks generally outperform those considering only macroeconomic factors. However, models combination strategies that integrate all five climate risk measures consistently deliver superior forecasting performance. Notably, the pronounced effect of climate risks on food inflation significantly contributes to the observed trends in the overall CPI, which is largely driven by this subcomponent. This research highlights the crucial role of climate factors in forecasting inflation, suggesting potential avenues for enhancing economic policy-making in light of evolving climate conditions. |
| Keywords: | Climate risks, US inflation, Dynamic quantile moving averaging, Forecasting |
| JEL: | C21 C22 C53 E31 Q54 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202420&r=mon |
| By: | Fengqi Xie (Tomsk State University); Marina Ryzhkova (Tomsk State University) |
| Abstract: | In recent years, the concept of central bank digital currency (CBDC) has gained significant attention in the field of monetary economics and finance. CBDC is a digital form of central bank money that can be used by the public and commercial banks for payments and other transactions. This paper provides a comparative study of the development status of CBDC in different countries and regions, including China, Sweden, the United States, and the European Union. The study examines the motivations for developing CBDC, the design features of CBDC, the legal and regulatory frameworks for CBDC, and the potential benefits and risks of CBDC. The findings suggest that while there is no one-size-fits-all approach to CBDC, there are some common themes and challenges that policymakers need to address in designing and implementing CBDC. |
| Keywords: | Central bank digital currency; Development status; Motivation; Design feature; Legal and regulatory frameworks; Potential benefits and risks |
| JEL: | G32 E58 G28 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:14115979&r=mon |
| By: | Frida Adjalala; Felipe Alves; Hélène Desgagnés; Wei Dong; Dmitry Matveev; Laure Simon |
| Abstract: | We assess both the US and Canadian nominal neutral rates to be in the range of 2.25% to 3.25%, somewhat higher than the range of 2.0% to 3.0% in 2023. The assessed range is back to the level it was at in April 2019. |
| Keywords: | Economic models; Interest rates; Monetary policy |
| JEL: | E4 E40 E43 E5 E50 E52 E58 F4 F41 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:24-9&r=mon |
| By: | Ṣebnem Kalemli-Özcan; Filiz D. Unsal |
| Abstract: | Contrary to historical episodes, the 2022–2023 tightening of US monetary policy has not yet triggered financial crisis in emerging markets. Why is this time different? To answer this question, we analyze the current situation through the lens of historical evidence. In emerging markets, the financial channel–based transmission of US policy historically led to more adverse outcomes compared to advanced economies, where the trade channel fails to smooth out these negative effects. When the Federal Reserve increases interest rates, global investors tend to shed risky assets in response to the tightening global financial conditions, affecting emerging markets more severely due to their lower credit ratings and higher risk profiles. This time around, the escape from emerging market assets and the increase in risk spreads have been limited. We document that the historical experience of higher risk spreads and capital outflows can be largely explained by the lack of credible monetary policies and dollar-denominated debt. The improvement in monetary policy frameworks combined with reduced levels of dollar-denominated debt have helped emerging markets weather the recent Federal Reserve hikes. |
| JEL: | F30 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32329&r=mon |
| By: | Carlos Cantú; Rocío Gondo; Berenice Martinez |
| Abstract: | We quantify the trade-offs of using reserve requirements (RR) as a financial stability tool. A tightening in RR reduces the amplitude of the credit cycle. This lowers the frequency and strength of financial stress episodes but at a cost of lower growth in credit and economic activity. We find that the gains from a lower probability and magnitude of financial stress episodes are greater than the costs from the initial reduction in economic activity. In addition, we find that RR have a stronger effect on emerging market economies than in advanced economies, both in terms of costs and benefits. Finally, we find that uniform RR have a stronger effect than RR that differenciate by maturity or currency. |
| Keywords: | reserve requirements, macroprudential policy, financial stress episodes, early-warning system, financial cycle |
| JEL: | E44 E58 F41 G01 G28 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1182&r=mon |
| By: | Joana Garcia; João Amador |
| Abstract: | We analyze how firms choose the currency in which they price their transactions in services trade and explore to what extent the U.S. dollar has a dominant role in those transactions, as documented by earlier literature for goods trade. Using a new granular dataset detailing the currency used by Portuguese firms in extra and intra-EU trade, we show that currency choices in services trade are active firm-level decisions. Services exporters that are larger and that rely more on inputs priced in foreign currencies are less likely to use the domestic currency in their services exports. Moreover, we document that the U.S. dollar has a dominant role as a vehicle currency in services trade, but it is less prevalent than in goods trade. Our results are consistent with this difference arising from a lower openness of services markets and from a stronger reliance of services in domestic inputs. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202316&r=mon |
| By: | Paduano, Stephen |
| Abstract: | This policy brief provides an overview of the Special Drawing Rights (SDR) agenda: what is being done with the world’s $108 billion in SDR rechanneling pledges, and what is left to do. It covers the primary conduits for rechanneling SDRs: the IMF’s Poverty Reduction & Growth Trust (PRGT) and Resilience & Sustainability Trust (RST). It notes that in order for the PRGT to be scaled up and receive more SDRs, IMF members must urgently address shortfalls in the PRGT’s subsidy account — one solution being small sales of the IMF’s $186 billion in gold. It also notes that in order for the RST to be scaled up and receive more SDRs, the IMF must develop the institutional capacity to develop RST programs more quickly. Given the financial and operational constraints on the PRGT and RST, this paper covers rechanneling to the multilateral development banks (MDBs). It discusses the power and appeal of the hybrid capital proposal, as well as the legal, technical, political, and geopolitical limitations in its uptake. Given the limitations placed on countries’ foreign exchange reserves (including their SDRs), it advocates a shift to ‘normal currency’ hybrid capital for countries that cannot contribute SDRs — thus making use of more manageable budget resources. It also re-introduces the proposal for an SDR-denominated, cash-settled bond. Particularly with respect to the International Development Association (IDA), it discusses how the inexpensive, long-term financing offered by an SDR bond would be valuable for MDBs that are currently only able to access more expensive and shorter-term financing from capital markets. In addition, it discusses how an SDR bond would align with countries’ rules on the use of foreign-exchange reserves. |
| Keywords: | European Central Bank, eurosystem, national central banks, Special Drawing Rights, International Monetary Fund, World Bank, global development, international financial architecture |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:notfdl:2402&r=mon |
| By: | Manuel Amador; Javier Bianchi |
| Abstract: | We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when banks are vulnerable to runs, banks’ leverage decisions are not ex-ante optimal: individual banks do not internalize that higher leverage makes other banks more vulnerable. The theory calls for introducing minimum capital requirements, even in the absence of bailouts. |
| JEL: | E32 E44 E58 G01 G21 G33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32341&r=mon |
| By: | Tabaqchali, Ahmed |
| Abstract: | The Central Bank of Iraq’s (CBI) dollar auction has been a continuous source of controversies and conspiracy theories. The main accusations facing it include: the siphoning of dollars to Iran, money laundering, and currency smuggling. Missing from this melee is an understanding of the economy’s key structural imbalances: mainly that the Iraqi economy is wholly dependent on oil export revenues, and demand for goods and services is met through imports handled by a largely informal private sector. Consequently, the government’s oil revenues are the economy’s major source of dollars, and the private sector depends on the auction as a significant source of dollars to pay for these imports. As such, it is the inherent imbalances in the economy’s structure that led to contradictory and unsustainable compromises within the functioning of the auction, and not unsubstantiated conspiracies. This piece aims to demystify the role and the functioning of the auction. It does so through reviewing (1) the oil and dollar lifecycle within Iraqi economy, (2) the private sector’s dollar supply-demand dynamics, and (3) the causes of the currency’s upheavals in November 2022, and their aftermath. It concludes that the measures undertaken in response to the upheavals have helped resolve most of the compromises that bedevilled the dollar auction in the past. However, lasting change requires addressing the economy’s structural imbalances head-on through implementing fundamental economic reforms centred around redefining the oversized role of the government in the economy and society. |
| JEL: | F3 G3 E6 N0 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122652&r=mon |
| By: | Hibiki Ichiue (Faculty of Economics, Keio University) |
| Abstract: | The Bank of Japan (BoJ) purchased equity index exchange-traded funds (ETFs), including Nikkei 225 ETFs, for over a decade and has not sold any ETFs it purchased. On March 31, 2021, the BoJ’s ETF holdings were more than 10% of the free float of the First Section of the Tokyo Stock Exchange. Primarily because the Nikkei index is price-weighted, the BoJ’s indirect holdings as a percentage of the market capitalization vary widely among individual stocks. To identify the effects of the uneven demand shocks, this paper runs instrumental-variable cross-sectional regressions of cumulative returns between September 30, 2010, a few days before the first announcement of ETF purchases, and March 31, 2021, when the BoJ terminated Nikkei 225 ETF purchases. The results suggest that the price multiplier is around 6 to 9; a 1 percentage point higher BoJ share in a stock’s market capitalization is associated with a roughly 6 to 9 percentage point higher return. The estimated multiplier is much higher than a typical estimate of 1 based on U.S. data. There is no evidence of a return reversal in the 9 months after Nikkei 225 ETF purchases ended. Various analyses, including monthly return regressions, support the analysis of cumulative returns and provide additional insights. |
| Keywords: | Asset pricing; Unconventional monetary policy; Exchange-traded funds |
| JEL: | E52 E58 G12 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:049&r=mon |
| By: | Sebastian Dullien (Macroeconomic Policy Institute (IMK)); Silke Tober (Macroeconomic Policy Institute (IMK)) |
| Abstract: | Germany’s CPI inflation stood at 6.1% in May 2023 and was thus more than one percentage point lower than in April 2023 (7.2%). Food prices contributed slightly less to inflation, but at 2.1 percentage points still almost seven times as much as usual. The contribution of household energy was nine times higher than in more normal times, albeit with a lower weight in the consumer price index than food. Total energy prices increased by only 2.6% as fuel prices significantly fell over the past 12 months ( 14.2%). Core inflation excluding energy, food, alcohol, and tobacco also declined and stood at 5.0% in May 2023 after 5.5% in April 2023. Prices for household energy increased by 17.4% year on year, followed by food and non-alcoholic beverages (14.5%). As the share of food and household energy in consumption expenditure is strongly correlated with income, there are still noticeable differences between household-specific inflation rates. In May 2023, the range of household-specific inflation rates was 1.5 percentage points. Low-income single adults, who benefited little from falling gasoline prices, had by far the highest inflation rate (6.9%), high-income single adults – as continuously since February 2022 – the lowest (5.4%). The difference in the combined burden of food and household-energy prices remains particularly pronounced. It amounted to 2.8 percentage points, with food and household energy contributing 4.7 percentage points to inflation for low-income single adults, compared to 1.9 percentage points for high-income single adults. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:imk:pbrief:152e-2023&r=mon |
| By: | Cappelletti, Giuseppe; Dimitrov, Ivan; Naruševičius, Laurynas; Le Grand, Catherine; Nunes, André; Podlogar, Jure; Röhm, Nicola; Ter Steege, Lucas |
| Abstract: | This paper presents the updated macroprudential stress test for the euro area banking system, comprising around 100 of the largest euro area credit institutions across 19 countries. The approach involves modelling banks’ reactions to changing economic conditions. It also examines the effects of adverse scenarios as defined for the European Banking Authority’s 2023 stress test on economies and the financial system as a whole by acknowledging a broad set of interactions and interdependencies between banks, other market participants and the real economy. Our results highlight the resilience of the euro area banking system and the important role banks’ adjustments play in the propagation of shocks to the financial sector and real economy. JEL Classification: C30, C53, C54, E52 |
| Keywords: | economic models, forecasting, macroeconometrics, monetary policy |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024347&r=mon |
| By: | Rogelio Mercado Jr.; Luca Sanfilippo |
| Abstract: | Portfolio bond flows to emerging and developing market economies (EDMEs) from multi-sector bond funds (MSBFs) are volatile and highly concentrated, rendering them potentially risky. This paper uses a recent MSBF flows dataset to shed more light on capital flow push and pull factors and to provide new evidence on the effectiveness of capital account tightening measures in reducing volatile MSBF flows. The results show: (i) higher U.S. monetary policy rates and global risk aversion significantly reduce aggregate MSBF flows and those denominated in hard currencies, while stronger global commodity price growth and global liquidity significantly increase them; (ii) global and domestic GDP growth (surprisingly) have a countercyclical impact on MSBF flows during our sample period, and, importantly, (iii) capital account tightening measures that target fixed income investment funds are effective in reducing MSBF flows to EDMEs, especially during periods of increased stress. Together, these results provide new insights into multi-sector bond funds and the importance of designing and implementing targeted capital control measures. |
| Keywords: | multi-sector bond funds, portfolio bond flows, and capital controls |
| JEL: | G23 F21 F38 F41 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2024-28&r=mon |
| By: | Gonzalo Garcia-Atance Fatjo |
| Abstract: | A tool to improve the effectiveness and the efficiency of public spending is proposed here. In the 19th century banknotes had a serial number. However, in modern days the use of digital transactions that do not use physical currency has opened the possibility to digitally track almost each cent of the economy. In this article a serial number or tracking number for each cent, pence or any other monetary unit of the economy is proposed. Then, almost all cents can be tracked by recording the transactions in a public distributed ledger, rather than recording the amount of the transaction, the information recorded in the block of the transaction is the actual serial number or tracking number for each cent that changes ownership. In order to keep the privacy of the transaction, only generic identification of private companies and individuals are recorded along with generic information about the concept of transaction, the region and the date/time. A secondary public distributed ledger whose blocks are identified by a hash reference that is recorded in the bank statement available to the payer and the payee allows for checking the accuracy of the first public distributed ledger by comparing the transactions made in one day, one region and one type of concept. However, the transactions made or received by the government are recorded with a much higher level of detail in the first ledger and a higher level of disclosure in the second ledger. The result is a tool that is able to accurately track public spending, to keep privacy of individuals and companies and to make statistical analysis and experiments or real tests in the economy of a country. This tool has the potential to assist public policymakers in demonstrating the societal benefits resulting from their policies, thereby enabling more informed decision-making for future policy endeavours. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.13189&r=mon |
| By: | Gubitz, Andrea; Toedter, Karl-Heinz; Ziebarth, Gerhard |
| Abstract: | Despite the "interest rate turnaround" initiated by the ECB in the second half of 2022 as a late reaction to the clearly underestimated persistence of high inflation rates in the euro area, real interest rates are by no means to be regarded as restrictive, neither in the ex post nor in the ex ante view. However, banks have been quite quick to adopt stricter lending guidelines, and demand in housing construction and mortgage lending has plummeted. Against this background, the paper discusses the importance of cash flow effects in annuity loans and in particular analyses the so-called front-loading effect. Accordingly, even if inflation rates are fully anticipated and real market and lending interest rates remain unchanged, higher nominal rates lead to strong additional financial burdens in the first phases of the typically mortgages with long maturities. Such liquidity effects can severely reduce the ability or willingness to pay of private investors in the household sector. This is particularly true for long-run loans in the form of a percentage annuity, as an additional maturity shortening effect occurs here. These types of fixed term loans are quite popular in Germany. Looking ahead, there is also a real risk to the stock of housing loans if there is a refinancing of the large stock of cheap housing loans, a risk that also has implications for macroeconomic and financial stability. |
| Abstract: | Trotz der von der EZB eingeleiteten "Zinswende" in der zweiten Jahreshälfte 2022 als späte Reaktion auf die deutlich unterschätzte Persistenz hoher Inflationsraten im Euroraum sind die Realzinsen sowohl in der ex post Betrachtung als auch in der ex ante Betrachtung keineswegs als restriktiv einzuschätzen. Die Banken haben allerdings recht rasch strengere Vergaberichtlinien beschlossen, und die Nachfrage im Wohnungsbau und bei den Hypothekarkrediten ist stark eingebrochen. Der Beitrag thematisiert vor diesem Hintergrund die Bedeutung von Zahlungsstromeffekten bei Annuitätenkrediten und analysiert hier vor allem den sog. front-loading Effekt. Danach führen höhere Nominalzinsen selbst bei vollständig antizipierten Inflationsraten und unveränderten Realzinsen zu starken finanziellen Zusatzbelastungen in den ersten Phasen der typischerweise langen Kreditlaufzeit. Derartige Liquiditätseffekte können die Zahlungsfähigkeit bzw. die Zahlungsbereitschaft der privaten Investoren empfindlich verringern. Dies gilt vor allem bei Darlehen in Form der Prozentannuität, da hier zusätzlich ein Laufzeitenverkürzungseffekt auftritt. Solche Darlehen sind in Deutschland recht populär. Mit Blick auf die Zukunft besteht auch eine reale Gefahr für den Bestand an Wohnungsbaukrediten, wenn es zu einer Refinanzierung des großen Bestands an günstigen Wohnungsbaukrediten kommt, ein Risiko, das auch Auswirkungen auf die makroökonomische und finanzielle Stabilität hat. |
| Keywords: | ECB, monetary policy, liquidity effects of interest rate policy, front loading effects, housing finance, mortgage |
| JEL: | G21 G51 E59 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hawdps:294836&r=mon |
| By: | Hetzel, Robert L.; Humphrey, Thomas M.; Tavlas, George S. |
| Abstract: | Carl Snyder was one of the most prominent U.S. monetary economists of the 1920s and 1930s. His pioneering work on constructing the empirical counterparts of the terms in the equation of exchange led him to formulate a four percent monetary growth rule. Snyder is especially apposite because he was on the staff of the New York Federal Reserve Bank. Despite his pioneering empirical work and his position as an insider, why did Snyder fail to effectively challenge the dominant real bills views of the Federal Reserve (Fed)? A short answer is that he did not possess a convincing version of the quantity theory that attributed the Great Depression to a contraction in the money stock produced by the Fed as opposed to the dominant real bills view attributing it to the collapse of speculative excess. |
| Date: | 2024–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:5xqt9&r=mon |
| By: | Salzer, Tim |
| Abstract: | This chapter offers a concise overview of China's endeavors towards establishing a state-backed digital currency from the early 2000s to the present, culminating in the digital yuan. Drawing on the social scientific literature concerned with large technical systems, we assert two main arguments. First of all, while many commentators have considered that the new payment infrastructure could overhaul the existing institutional arrangements in the realm of payments and in particular weaken private financial entities, its evolution actually follows a much more incremental logic and relies on both private and public institutions. Secondly, many foreign observers have assumed that the digital yuan represents a long-planned attempt at challenging the international currency hierarchy and American international hegemony. Contrary to this line of thinking, we argue that initially, currency digitalization in the PRC was first and foremost motivated by domestic factors. The project assumed an openly international dimension only after other foreign countries began to initiate their own attempts at currency digitalization under the new slogan of developing "Central Bank Digital Currencies". |
| Date: | 2024–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:5yq4r&r=mon |
| By: | Lennard, Jason (London School of Economics); Kenny, Seán (University College Cork, Queen's University Centre for Economic History, and Lund University); Horgan, Emma (University College Cork) |
| Abstract: | This paper studies a natural experiment in macroeconomic history: the Irish bank strike of 1966, which led to the closure of the major commercial banks for three months. We use synthetic control to estimate how the economy would have evolved had the strike not happened. We find that economic activity slowed, deviating by 6% from the counter- factual path. Narrative evidence not only supports this finding, but also depicts the struggles of households and firms managing a credit crunch, a liquidity shock, and rising transaction costs. This case study highlights the importance of banks for economic performance. |
| Keywords: | banks; Ireland; macroeconomy; post-war |
| JEL: | E32 E44 G21 N14 N24 |
| Date: | 2024–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0256&r=mon |
| By: | Helyette Geman |
| Abstract: | On Friday, March 10 -2023, the US and the world discovered that the Federal Deposit Insurance Corporation (FDIC) had seized the Silicon Valley Bank after SVB’s customers had withdrawn an extraordinary $42 billion from their deposits on March 16. This $4.2 billion an hour, or more than $1 million per second for ten straight hours, an unprecedented event made possible by the use of Apps by many startup founders to access their accounts and advise their friends to do the same -what the Chairman of the House of Financial Services Committee called ‘the first Twitter -fueled bank run’. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ocp:ppaper:pb16-23&r=mon |
| By: | Lucke, Bernd |
| Abstract: | After more than 20 years of European Monetary Union (EMU), surprisingly few scientific studies exist which study the growth effects of introducing a common currency in large parts of the European Union. I do so using a large panel (NUTS3 data) of regional data for the EU-15. Some 800 (treated) regions were subject to a policy intervention when their country joined the Euro, while some 200 control regions were not. In a synthetic control approach as explored e. g. by Abadie, Diamond and Hainmueller (ADH, 2010), I estimate the causal effects of EMU both with the standard ADH-methodology and with a novel approach which estimates counterfactuals from the control group in post-treatment time. The results from both approaches are very similar: EMU has benefited regions with export-oriented and highly competitive companies e. g. in Germany, while it has had sizable detrimental growth effects on most French and Mediterranean Eurozone regions. Over eighteen years, these losses in growth cumulate to losses in per-capita income of between 15% and 30% vis-à-vis the non-EMU counterfactual. |
| Keywords: | European Monetary Union, synthetic control methods |
| JEL: | C12 C13 C21 C23 E65 F33 N14 |
| Date: | 2022–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120662&r=mon |
| By: | Jakree Koosakul; Alexei Miksjuk |
| Abstract: | The expansion of bilateral swap arrangements (BSAs) since the Global Financial Crisis has led to a substantial reconfiguration of the Global Financial Safety Net (GFSN). This paper examines the drivers of BSA supply using a novel dataset on all publicly documented BSAs. It finds that countries with well-developed financial markets and institutions and high trade openness are more likely to backstop other economies by establishing BSAs. In addition, their choice of BSA counterparts is driven by strong investment and trade exposures to these countries, with variation in the relative importance of these factors across major BSA providers. The paper shows that geopolitical considerations often affect such decisions, as BSAs are less likely to be established between geopolitically distant countries and more likely between countries in the same regional economic bloc. |
| Keywords: | Bilateral swap arrangements; geoeconomic fragmentation; global financial safety net; liquidity provision |
| Date: | 2024–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/088&r=mon |
| By: | Barbara Casu; Laura Chiaramonte; Doriana Cucinelli |
| Abstract: | This study investigates the effect of the introduction of the net stable funding ratio (NSFR) on South African domestic banks lending. We decompose total lending by customer type (corporate vs household) and by loan categories (instalments, mortgages, credit cards, overdrafts and other loans) to account for different risk profiles and maturities (short-, medium- and long-term lending). Our results show that NSFR regulations in South Africa are largely compliant with Basel III standards. While total lending does not appear to have been affected, our results indicate that the introduction of the NSFR has influenced loan composition and maturity profiles. We find that South African banks have increased the proportion of short-term lending in their loan portfolios, decreasing long-term lending, especially in residential mortgages. This effect aligns with the NSFRs aim to reduce maturity transformation but could nonetheless impact households ability to obtain long-term credit. |
| Date: | 2024–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:11063&r=mon |