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on Monetary Economics |
| By: | Herr, Hansjörg |
| Abstract: | Today all countries have fiat money issued by a central bank. There is no obligation by a central bank to exchange its money for gold or any other good. Central banks have the monopoly to issue central bank money and have the power to create their money out of nothing. Creating such a monetary system is functional for a capitalist economy and must be regarded as a major feat of civilization, which could only be completed after around 200 years of capitalist development. This article traces the painful farewell from gold from the Classical Gold Standard in the early 19th century up to the end of the Bretton Woods system in the mid-20th century. |
| Keywords: | money, gold standard, currency systems |
| JEL: | E40 N20 P20 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:300844 |
| By: | Gara Afonso; Domenico Giannone; Gabriele La Spada; John C. Williams |
| Abstract: | The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, whereby short-term interest rates are controlled mainly through the setting of administered rates. To do so, the quantity of reserves in the banking system needs to be large enough that everyday changes in reserves do not cause large variations in the policy rate, the so-called federal funds rate. As the Fed shrinks its balance sheet following the plan laid out by the Federal Open Market Committee (FOMC) in 2022, how can it assess when to stop so that the supply of reserves remains ample? In the first post of a two-part series, based on the methodology developed in our recent Staff Report, we propose to assess the ampleness of reserves in real time by estimating the slope of the reserve demand curve. |
| Keywords: | ample reserves; monetary policy; early-warning signals |
| JEL: | E41 E52 |
| Date: | 2024–08–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98660 |
| By: | Marc Burri and Daniel Kaufmann |
| Abstract: | We propose a two-step approach to estimate multi-dimensional monetary policy shocks and their causal effects requiring only daily financial market data and policy events. First, we combine a heteroscedasticity-based identification scheme with recursive zero restrictions along the term structure of interest rates to disentangle multi-dimensional monetary policy shocks and derive an instrumental variables estimator to estimate dynamic causal effects. Second, we propose to use the Kalman filter to compute the linear minimum mean-square-error prediction of the unobserved monetary policy shocks. We apply the approach to examine the causal effects of US monetary policy on the exchange rate. The heteroscedasticity-based monetary policy shocks display a relevant correlation with existing high-frequency surprises. In addition, their dynamic causal effects on the exchange rate are similar. This suggests the approach is a valid alternative if high-frequency identification schemes are not applicable. |
| Keywords: | Monetary policy shocks, forward guidance, large-scale asset purchases, identification through heteroscedasticity, instrumental variables, term structure of interest rates, exchange rate |
| JEL: | C3 E3 E4 E5 F3 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:irn:wpaper:24-03 |
| By: | Ozili, Peterson K |
| Abstract: | This study investigates the effect of CBDC issuance on economic growth rate and inflation rate in Nigeria. We are interested in determining whether the rate of economic growth and inflation changed significantly after the issuance of a non-interest bearing CBDC in Nigeria. Two-stage least square regression and granger causality test were used to analyse the data. Inflation significantly increased in the CBDC period, implying that CBDC issuance did not decrease the rate of inflation in Nigeria. Economic growth rate significantly increased in the CBDC period, implying that CBDC issuance improved economic growth in Nigeria. The financial sector, agricultural sector and the manufacturing sector witnessed a much stronger contribution to gross domestic product (GDP) after CBDC issuance. There is one-way granger causality between CBDC issuance and monthly inflation, implying that CBDC issuance causes a significant change in monthly inflation in Nigeria. The implication of the result is that the non-interest bearing eNaira CBDC is not able to solve the twin economic problem of “controlling inflation which stifles economic growth” and “stimulating economic growth which leads to more inflation.” Policy makers should therefore use the eNaira CBDC alongside other monetary policy tools at their disposal to control inflation while stimulating growth in the economy. There are no empirical studies on the effect of CBDC issuance on economic growth or inflation using real-world data. We add to the monetary economics literature by analyzing the effect of CBDC issuance on economic growth and inflation. |
| Keywords: | central bank digital currency, CBDC, inflation, economic growth, Nigeria |
| JEL: | E31 E32 E42 E52 E58 O43 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121524 |
| By: | Gara Afonso; Kevin Clark; Brian Gowen; Gabriele La Spada; JC Martinez; Jason Miu; Will Riordan |
| Abstract: | The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, where short-term interest rates are controlled mainly through the setting of administered rates, and active management of the reserve supply is not required. In yesterday’s post, we proposed a methodology to evaluate the ampleness of reserves in real time based on the slope of the reserve demand curve—the elasticity of the federal (fed) funds rate to reserve shocks. In this post, we propose a suite of complementary indicators of reserve ampleness that, jointly with our elasticity measure, can help policymakers ensure that reserves remain ample as the Fed shrinks its balance sheet. |
| Keywords: | reserves; ample reserves; overnight reverse repo (ON RRP); monetary policy implementation; Federal Reserve |
| JEL: | E42 E52 G21 |
| Date: | 2024–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98685 |
| By: | Bank of Japan (Bank of Japan) |
| Abstract: | On May 21, 2024, the second workshop on the "Review of Monetary Policy from a Broad Perspective, " entitled "Economic Activity, Prices, and Monetary Policy over the Past 25 Years, " was held at the Bank of Japan's Head Office. At the workshop, economists and financial and economic experts participated in a lively discussion. Session 1 provided a review of economic and price developments in Japan since the late 1990s and a presentation on recent changes in the environment. Participants then discussed issues such as the impact of "Quantitative and Qualitative Monetary Easing" on the economy and prices, the reasons why behavior and a mindset based on the assumption that wages and prices would not increase easily had become entrenched as the norm in society, and whether the norm should be judged as changing. Session 2 provided a presentation on the effectiveness of unconventional monetary policy through the "expectations channel" under the effective lower bound on interest rates and on the economic implications of moderate price increases. Participants then discussed issues such as the mechanisms of inflation expectations formation, the evaluation of the effects of monetary policy on expectations, and the consistency of theoretical views on the benefits of moderate price increases with reality. In the panel discussion in Session 3, participants started by discussing reasons why the norm had formed and recent changes in the norm. Participants highlighted reasons for the formation of the norm since the late 1990s, such as the fact that maintaining employment had become the top priority, leading to a suppression of wages, and the fact that price competition continued to be severe. Meanwhile, while one view was that the norm was changing due to factors such as the growing shortage of labor, another view was that there had been no major structural changes in the labor market and that the recent increases in wages and prices may have been a temporary phenomenon caused by exogenous shocks. In addition, panelists reviewed the lessons learned from the monetary policy of the past 25 years. With regard to unconventional monetary policy, some argued that it had had positive effects such as improving the output gap even under the effective lower bound on interest rates, while others pointed to the difficulty of influencing expectations and the side effects of prolonged monetary easing on productivity. |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojron:ron240809a |
| By: | Oleksiy Kryvtsov; Gary Koop |
| Abstract: | We study how within-store price variation changes with inflation, and whether households exploit it to attenuate the inflation burden. We use micro price data for food products sold by 91 large multi-channel retailers in 10 countries between 2018 and 2024. Measuring unit prices within narrowly defined product categories, we analyze two key sources of variation in prices within a store: temporary price discounts and differences across similar products. Price changes associated with discounts grew at a much lower average rate than regular prices, helping to mitigate the inflation burden. By contrast, cheapflation—a faster rise in prices of cheaper goods relative to prices of more expensive varieties of the same good—exacerbated it. Using Canadian Homescan Panel data, we estimate that spending on discounts reduced the change in the average unit price by 4.1 percentage points, but expenditure switching to cheaper brands raised it by 2.8 percentage points. |
| Keywords: | Inflation and prices; Inflation: costs and benefits; Market structure and pricing |
| JEL: | E21 E30 E31 L81 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-31 |
| By: | Philipp Engler; Gianluigi Ferrucci; Pawel Zabczyk; Tianxiao Zheng |
| Abstract: | We provide new evidence on the spillover effects of ECB monetary policy shocks to emerging European economies, using a combination of empirical methods and model-based simulations and focusing on spillovers from interest rate and balance sheet policies implemented by the ECB. We consider an event study set around the ECB policy announcement in June 2022 and also use local projections to estimate regional spillovers in a panel of 16 Emerging European countries spanning 1999 to 2022. Identifying ECB monetary policy shocks as the unexplained component of changes in the three-month Euribor futures rate, we find that ECB monetary policy tightening induces more than one-for-one changes in government bond yields in Emerging Europe, as well as sizable increases in sovereign spreads, domestic currency depreciations, and significantly lower output. Model simulations using a two-country DSGE calibrated to the euro area and its Eastern European neighbors reveal that a conventional tightening, achieved through interest rate increases, provides a more favorable inflation-output trade-off compared to balance sheet tightenings. The extent of spillovers from quantitative tightening depends on the speed of balance sheet reduction, and it is larger under a fixed exchange rate regime. |
| Keywords: | Monetary Policy; Quantitative Easing; International Spillovers |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/170 |
| By: | Kinda Hachem |
| Abstract: | Shortly after the collapse of Silicon Valley Bank (SVB) in March 2023, a consortium of eleven large U.S. financial institutions deposited $30 billion into First Republic Bank to bolster its liquidity and assuage panic among uninsured depositors. In the end, however, First Republic Bank did not survive, raising the question of whether a reallocation of liquidity among financial institutions can ever reduce the need for central bank balance sheet expansion in the fight against bank runs. We explore this question in this post, based on a recent working paper. |
| Keywords: | bank run; bank liquidity; interbank markets; Clearinghouse; Panic of 1873 |
| JEL: | D62 G01 |
| Date: | 2024–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98659 |
| By: | Andres Escayola, Erik; McQuade, Peter; Schroeder, Christofer; Tirpák, Marcel |
| Abstract: | Monetary policy decisions by the Federal Reserve System in the US are widely recognised to have spillover effects on the rest of the world. In this paper, we focus on the asymmetric effects of US monetary policy shocks on macro-financial outcomes in emerging market economies (EMEs). We shed light on how domestic factors shape external monetary policy spillover effects using indicators on the macro-financial vulnerabilities and monetary policy stances of EMEs. We find that a surprise tightening of monetary policy in the US leads to an immediate tightening of financial conditions which leads to a decline in activity and prices in EMEs over one year. Importantly, these effects are amplified in periods of high vulnerabilities and attenuated when EMEs follow a prudent monetary policy stance. Our findings help explain the greater resilience of many EMEs to the Fed’s post-COVID-19 tightening cycle, and highlight the benefits of the broad improvements of monetary policy frameworks in these countries. JEL Classification: F42, E58, E52, C32 |
| Keywords: | emerging markets, monetary policy, spillovers |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242973 |
| By: | Mai Chi Dao (International Monetary Fund); Pierre-Olivier Gourinchas (International Monetary Fund); Daniel Leigh (International Monetary Fund); Prachi Mishra (Ashoka University) |
| Abstract: | This paper analyzes inflation dynamics in 21 advanced and emerging market economies since 2020. We decompose inflation into core inflation as measured by the weighted median inflation rate, and headline shocks––deviations of headline inflation from core. Headline shocks occurred largely on account of energy price changes, although food price changes and indicators of supply chain problems also played a role. We explain the evolution of core inflation with two factors: the strength of macroeconomic conditions—measured by the unemployment gap, the output gap, and the ratio of job vacancies to unemployment—and the pass-through into core inflation from past headline shocks. We conclude that the international rise and fall of inflation since 2020 largely reflected the direct and pass-through effects of headline shocks. Macroeconomic conditions generally played a secondary role. In the United States, estimated price pressures from strong macroeconomic conditions had been greater than in other economies but have eased. |
| Keywords: | core inflation; inflation; inflation shocks; labor market tightness; median inflation; Phillips Curve |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:ash:wpaper:119 |
| By: | Sharma, Purushottam; Meena, Dinesh Chand; Anwer, Md. Ejaz |
| Abstract: | The study examines the asymmetric dynamic relationship between food price inflation and its determinants in both the short and long run, evaluates the impact of asymmetry on Indian food prices, and explores the pass-through effect from non-food to food price inflation and vice versa. The ARDL and NARDL models were used to explore the dynamics of food inflation and its drivers using monthly data from January 2011 to December 2022. The DOLS method was also used to estimate the pass-through effect between non-food and food inflation, to better understand how inflationary pressures are transmitted. The ARDL results confirm that international food prices, wage rates, agricultural GDP, and weighted average call money rate are major contributors to food inflation in the long run. The NARDL results show the significant asymmetric effects of money supply, wage rate, crude oil prices, international food prices, real effective exchange rate, and weighted average call money rate on food inflation in the long run. The findings of this study will provide valuable insights for policymakers and agricultural stakeholders in developing effective policies and strategies to manage food price inflation and ensure food affordability. |
| Keywords: | Demand and Price Analysis |
| Date: | 2024–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:ags:cfcp15:344332 |
| By: | Hafedh Bouakez; Takashi Kano |
| Abstract: | The neo-Fisherian effect typically refers to the short-run increase in inflation associated with a permanent increase in the nominal interest rate. This positive comovement between the two variables is commonly viewed — and empirically identified — as being conditional on permanent monetary shocks, which are often interpreted as permanent shifts in the inflation target. Such a view, however, implies that inflation and the nominal interest rate share a common stochastic trend, a property that is hardly supported by the data, especially during episodes of stable inflation. Moreover, in countries that have adopted formal inflation targeting, changes in the inflation target occur very infrequently, if at all, calling into question the interpretation of inflation target shocks identified within standard time-series models based on quarterly data. In this paper, we propose a novel empirical strategy to detect the neo-Fisherian effect, which we apply to U.S. data. Our procedure relaxes the commonly used identifying restriction that inflation and the nominal interest rate are cointegrated, and, more importantly, is agnostic about the nature of the shock that gives rise to a neo-Fisherian effect. We find that the identified shock has no permanent effect on the nominal interest rate or inflation, but moves them in the same direction for a number of quarters. It also accounts for the bulk of their variability at any given forecasting horizon, while explaining a non-negligible fraction of output fluctuations at business-cycle frequencies. Using Bayesian techniques, we show that the data favors the interpretation of the identified shock as a liquidity preference shock rather than an inflation target shock. |
| Keywords: | identification, inflation, liquidity preference, neo-Fisherian effect |
| JEL: | E12 E23 E31 E43 E52 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-49 |
| By: | Eickmeier, Sandra; Petersen, Luba |
| Abstract: | We examine public trust in the European Central Bank (ECB) and its determinants using data from the Bundesbank Household Panel survey for Germany. Employing an interdisciplinary approach that integrates insights from political science and psychology, we offer a fresh perspective on the factors influencing central bank trust that is more holistic than the conventional one. Our primary findings can be summarized as follows. Households who state that competence, which we define as the ECB's performance in maintaining stable prices and making decisions grounded in rules, science, and data, matters for their trust in the ECB, tend to express higher trust in the ECB. Conversely, those who place greater importance on values, particularly the integrity of top central bankers, honest communication and broader concern, tend to trust the ECB less. Trust in the ECB also hinges on trust in political institutions more generally and, to a lesser extent, on generalized trust (i.e. trust in others). |
| Keywords: | Central banks, trust, survey, central bank communication, values, competence, experiences, credibility |
| JEL: | E7 E58 E59 C93 D84 Z13 Z18 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:300702 |
| By: | Glas, Alexander; Schölkopf, Julius |
| Abstract: | On 6 June 2024, the European Central Bank (ECB) lowered the main refinancing operations (MRO) rate from 4.5% to 4.25%. This decision followed a period of elevated interest rates intended to combat high inflation in the euro area, which peaked at 10.6% in October 2022 in the aftermath of the COVID-19 pandemic and the Russian invasion of Ukraine. Although inflation levels are now closer to the ECB's medium-term target of 2%, some doubt remains on whether the inflationary pressure has truly abated, since the last mile of the inflation cycle is often perceived as challenging. Indeed, inflation increased again in May 2024 to 2.6%, from 2.4% in April, and the ECB has not committed itself to a certain interest rate path. Instead, it follows a data-dependent meeting-by-meeting approach for further interest rate decisions. In this policy brief, we analyse whether and how much professional forecasters and market analysts disagree on the nature and speed of future interest rate decisions by the ECB. We also consider the role of uncertain dynamics of future inflation and the economic recovery in the euro area to explain the dispersion of interest rate expectations. For this purpose, we asked the participants in the June 2024 wave of the ZEW's Financial Market Survey for their expectations regarding interest rate decisions at upcoming Governing Council meetings. We condition the individual responses on the respondents' short- and medium-term inflation and GDP growth expectations and supplement our findings with similar evidence for the US. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewpbs:300832 |
| By: | Vania Stavrakeva; Jenny Tang |
| Abstract: | In this paper, we study how the volatility of both realized and expected macroeconomic variables relates to the variation in exchange rate volatility through the prism of the Great Moderation hypothesis. We find significant heterogeneity in exchange rate trend volatility across currency pairs despite decreases in the volatility of expected future interest rate differentials and of realized yields themselves. We argue that time variation in the relationship between macroeconomic variables and exchange rates has prevented the Great Moderation in realized yield volatility from translating to a decrease in exchange rate volatility. Considering a Campbell‐Shiller‐type decomposition of exchange rate changes into forward‐looking components linked to inflation, policy rate, and currency risk premia expectations, we find that the Great Moderation in volatility of expected yield differentials cannot explain the patterns in exchange rate volatility we observe. The main drivers of these patterns were trends in the volatility of the currency risk premium component and in the covariance between the components capturing the strength of the Fama puzzle and the expected responsiveness of monetary policy to inflation. |
| Keywords: | exchange rates; international finance; volatility trends; risk premia; Fama puzzle |
| JEL: | E44 F31 G15 |
| Date: | 2024–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:98625 |
| By: | Ahmet Degerli; Phillip J. Monin |
| Abstract: | In this note, we examine the recent growth of private credit markets and its effects on monetary policy transmission. We find that private credit has grown by competing with or substituting other forms of credit and by lending to a set of borrowers that have difficulty obtaining credit otherwise. |
| Date: | 2024–08–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-08-02-1 |
| By: | Altavilla, Carlo; Boucinha, Miguel; Pagano, Marco; Polo, Andrea |
| Abstract: | Combining euro-area credit register and carbon emission data, we provide evidence of a climate risk-taking channel in banks’ lending policies. Banks charge higher interest rates to firms featuring greater carbon emissions, and lower rates to firms committing to lower emissions, controlling for their probability of default. Both effects are larger for banks committed to decarbonization. Consistently with the risk-taking channel of monetary policy, tighter policy induces banks to increase both credit risk premia and carbon emission premia, and reduce lending to high emission firms more than to low emission ones. While restrictive monetary policy increases the cost of credit and reduces lending to all firms, its contractionary effect is milder for firms with low emissions and those that commit to decarbonization. JEL Classification: E52, G21, Q52, Q53, Q54, Q58 |
| Keywords: | carbon emissions, climate risk, interest rate, lending, monetary policy |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242969 |
| By: | Mr. Ales Bulir; Mr. Jan Vlcek |
| Abstract: | Was the recent decline in real interest rates driven by a diminishing natural real interest rate, or have we observed a long sequence of shocks that have pushed market rates below the equilibrium level? In this paper we show on a sample of 12 open economies that once we account for equilibrium real exchange rate appreciation/depreciation, the natural real interest rate in the 2000s and 2010s is no longer found to be declining to near or below zero. The explicit inclusion of equilibrium real exchange rate appreciation in the identification of the natural rate is the main deviation from the Laubach-Williams approach. On top of that, we use a full-blown semi-structural model with a monetary policy rule and expectations. Bayesian estimation is used to obtain parameter values for individual countries. |
| Keywords: | r-star; zero lower bound; equilibrium real appreciation; Penn effect |
| Date: | 2024–07–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/161 |
| By: | López, Lucia; Odendahl, Florens; Parrága, Susana; Silgado-Gómez, Edgar |
| Abstract: | This paper uses a Bayesian Structural Vector Autoregressive (BSVAR) framework to estimate the pass-through of unexpected gas price supply shocks on HICP inflation in the euro area and its four largest economies. In comparison to oil price shocks, gas price shocks have approximately one-third smaller pass-through to headline inflation. Country-specific results indicate gas price increases matter more for German, Spanish and Italian inflation than for French inflation, hinging on the reliance on energy commodities in consumption, production, and different electricity prices regulation. Consistent with gas becoming a prominent energy commodity in the euro area, including time-variation through a time-varying parameter BVAR demonstrates a substantially larger impact of gas price shocks on HICP inflation in recent years. The empirical estimates are then rationalized using a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model augmented with energy. In the model, the elasticity of substitution between gas and non-energy inputs plays a critical role in explaining the inflationary effects of gas shocks. A decomposition of the recent inflation dynamics into the model structural shocks reveals a larger contribution of gas shocks compared to oil shocks. JEL Classification: C11, C32, E31, Q41 |
| Keywords: | Bayesian VARs, inflation, natural gas and oil shocks, new Keynesian DSGE |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242968 |
| By: | Yuval Boneh |
| Abstract: | Decentralized Finance (DeFi) has reshaped the possibilities of reserve banking in the form of the Collateralized Debt Position (CDP). Key to the safety of CDPs is the money supply architecture that enables issued debt to maintain its value. In traditional markets, and with respect to the United States Dollar system, interest rates are set by the Federal Reserve in an attempt to influence the effects of excessive inflation. DeFi enables a more transparent approach that typically relies on interest rates or other debt recovery mechanisms being directly informed by asset price. This research investigates contemporary DeFi money supply and debt management strategies and their limitations. Furthermore, this paper introduces a time-weighted approach to interest rate management that implements a Proportional-Integral-Derivative control system to constantly adapt to market activities and protect the value of issued currency, while addressing observed limitations. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.13232 |
| By: | Flavio Abanto Salcedo (Central Reserve Bank of Peru (BCRP)) |
| Abstract: | This paper presents an empirical analysis of the effectiveness of foreign exchange (FX) intervention in Peru, with emphasis on the intervention carried out through derivative instruments. I use two different but related approaches to estimate the impact of these kind of interventions between 2014 and 2023. First, I estimate a proxy SVAR with daily data which uses an instrument constructed with intraday data. Results show that FX interventions have an impact on the level of the exchange rate in the expected direction: an FX sale intervention of between USD 60 and USD 120 million generates an appreciation of between 0.02 and 0.04 percent of the currency in the same day. On the other hand, spot intervention is found to be slightly more effective. The estimations, however, do not provide sufficient evidence to conclude on the impact on the exchange rate volatility in the short run. Second, I estimate event study regressions with intraday data, which allowed to confirm that these interventions have the expected effect after around 10 minutes. However, no evidence of the existence of an information channel is found since the announcement of these interventions does not significantly impact the exchange rate. |
| Keywords: | foreign exchange intervention; currency; derivatives; derivate instruments; Peru; exchange rate |
| JEL: | F31 G11 G14 G15 |
| Date: | 2024–08–20 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp17-2024 |
| By: | Rustam Jamilov; Tobias König; Karsten Müller; Farzad Saidi |
| Abstract: | We study bank runs using a novel historical cross-country dataset that covers 184 countries over the past 200 years and combines a new narrative chronology with statistical indicators of bank deposit withdrawals. We document the following facts: (i) the unconditional likelihood of a bank run is 1.2% and that of significant deposit withdrawals 12.7%; (ii) systemic bank runs, i.e. those that are accompanied by deposit withdrawals, are associated with substantially larger output losses than non-systemic runs or deposit contractions alone; (iii) bank runs are contractionary even when they are not triggered by fundamental causes, banks are well-capitalized, and there is no evidence of a crisis or widespread failures in the banking sector; (iv) in historical and contemporary episodes, depositors tend to run on highly leveraged banks, causing a credit crunch, and a reallocation of deposits across banks; and (v) liability guarantees are associated with lower output losses after systemic runs, while having a lender of last resort or deposit insurance reduces the probability of a run becoming systemic. Taken together, our findings highlight a key role for sudden bank liability disruptions over and above other sources of financial fragility. |
| Keywords: | bank runs, financial fragility, deposits, financial crises |
| JEL: | E44 E58 G01 G21 G28 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_589 |
| By: | Leon Kempen; Johan Pouwelse |
| Abstract: | Current digital payment solutions are fragile and offer less privacy than traditional cash. Their critical dependency on an online service used to perform and validate transactions makes them void if this service is unreachable. Moreover, no transaction can be executed during server malfunctions or power outages. Due to climate change, the likelihood of extreme weather increases. As extreme weather is a major cause of power outages, the frequency of power outages is expected to increase. The lack of privacy is an inherent result of their account-based design or the use of a public ledger. The critical dependency and lack of privacy can be resolved with a Central Bank Digital Currency that can be used offline. This thesis proposes a design and a first implementation for an offline-first digital euro. The protocol offers complete privacy during transactions using zero-knowledge proofs. Furthermore, transactions can be executed offline without third parties and retroactive double-spending detection is facilitated. To protect the users' privacy, but also guard against money laundering, we have added the following privacy-guarding mechanism. The bank and trusted third parties for law enforcement must collaborate to decrypt transactions, revealing the digital pseudonym used in the transaction. Importantly, the transaction can be decrypted without decrypting prior transactions attached to the digital euro. The protocol has a working initial implementation showcasing its usability and demonstrating functionality. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.13776 |
| By: | Ozili, Peterson K |
| Abstract: | This study empirically examines the effect of economic policy on sustainable development using annual data for 22 countries from 2011 to 2018. The study also proffers some economic policy strategies for increasing the level of sustainable development. In the empirical analysis, a sustainable development index was constructed comprising of SDG proxy indicators: healthcare expenditures to GDP ratio (SDG3), percentage of people using safely managed drinking water services (SDG6) and the share of renewable energy to final total energy consumption (SDG7). The results show that the economic policy index has a significant positive effect on the sustainable development index particularly in non-European countries and in developing countries and a negative effect in European countries and developed countries. Changes in monetary policy, fiscal policy and regulatory policy have a significant impact on the level of sustainable development. Expansionary monetary policy via increase in broad money to GDP ratio increases the attainment of SDG6 while contractionary monetary policy via increase in central bank interest rate increases the attainment of SDG7. Expansionary fiscal policy via increase in consumer spending leads to the attainment of SDG3 and SDG7 but it adversely affects the attainment of SDG6. Effective regulatory policy via increase in institutional governance quality increases the attainment of SDG3 and SDG6. There is uni-directional causality between economic policy and sustainable development. Monetary policy and regulatory policy also have a uni-directional relationship with sustainable development, implying that changes in monetary and regulatory policies cause changes in the level of sustainable development. This study is the first to empirically examine the contribution of economic policy to sustainable development using composite indices. |
| Keywords: | sustainable development, economic policy, monetary policy, fiscal policy, regulatory policy, strategies |
| JEL: | E52 E62 E63 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121523 |
| By: | Diego Solórzano; Lenin Arango-Castillo |
| Abstract: | Using daily retail prices gathered through web scraping in Mexico, we analyze if price changes can be characterized by time-dependent features, like the duration of the price spell, and/or by variables associated with the state of the economy. Through the lens of a duration model, we find evidence of both time- and state-dependency behavior. Favoring time-dependency, on the one hand, estimates indicate that price spells exhibit greater risk of ending every seven days relative to other days in between. Advocating for state-dependency, the probability of price changes seems to be affected by variations in the USD/MXN exchange rate, variations in real point of sales expenditures and the COVID-19 pandemic. Finally, leveraging data gathered via direct visits to brick-and-mortar stores, we also find time-dependency and state-dependency in the duration of price spells. |
| Keywords: | Web scraped retail prices;Duration models;Nominal rigidities;COVID-19 |
| JEL: | E31 C41 L16 C55 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bdm:wpaper:2024-10 |
| By: | Francois de Soyres; Grace Lofstrom; Mitch Lott; Chris Machol; Zina Saijid |
| Abstract: | Following several decades of low inflation in most advanced economies, the Covid pandemic gave rise to unprecedented global economic conditions, materializing in a synchronized surge in price pressures. In this note, we analyze the recent inflation burst and assess the disinflation progress across advanced economies. |
| Date: | 2024–08–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-08-02-5 |
| By: | Ignacio Presno; Andrea Prestipino |
| Abstract: | The 2022 inflation surge has renewed interest in the drivers of inflation, with special attention on the role of oil and other commodity prices given the large increase in these prices post-pandemic. In this note, we use a DSGE model of the global economy to quantify the impact on U.S. inflation and output of the oil shocks that drove oil prices up by about $45 per barrel in the first half of 2022, around Russia's invasion of Ukraine. |
| Date: | 2024–08–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-08-02-3 |
| By: | Fabienne Schneider (Study Center Gerzensee) |
| Abstract: | The premium on “on-the-run†Treasuries (i.e. the most recently issued ones) is an anomaly. I explain it using a model in which primary dealers hold inventories of Treasuries. Primary dealers are more likely to hold large inventories of on-the-run Treasuries. There is also less variation across primary dealers in the available stock of on-the-run Treasuries compared with all other, so-called off -the-run Treasuries. Because on-the-run Treasuries are easier to fi nd, they trade at a premium. My theory is consistent with the USD 40 billion of Treasury contracts that fail to settle each day, with the median failure rate of off -the-run Treasuries being almost twice that of on-the-run Treasuries. I use the model to analyse the eff ects of granting access to central bank facilities to non-banks active in the Treasury market. Broad access stimulates trading and reduces the on-the-run premium, but settlement fails increase and, counterintuitively, only primary dealers benefit. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:szg:worpap:2405 |
| By: | Hoffmann, Clemens; Kastens, Lina; vPortugal-Perez, Alberto; von Cramon-Taubadel, Stephan |
| Abstract: | We look for evidence that countries increasingly insulate their domestic markets for staple grains from global markets when international prices increase. Previous studies have demonstrated that the transmission of international to domestic prices for these products is less than perfect, which reduces the ability of the global trading system to buffer shocks. However, past studies generally assume that relationships between international and domestic prices are constant, and hence that a country’s degree of insulation does not vary over time. To relax this assumption, we use a smooth-transition model, a modified version of the error correction model (ECM). We estimate elasticities of transmission from international to domestic wholesale and retail prices for a comprehensive set of countries for wheat, yellow and white maize, and rice. We find that price transmission from international to domestic prices weakens in many countries and on average when international prices peak, in other words that the insulation of domestic from international prices increases during high-price episodes (such as in 2007/08 and 2022). We also find that this increased insulation cannot be attributed exclusively to changes in border measures such as export restrictions or import tariffs. This suggests that countries are also using measures such as price controls or the release of stocks to insulate their domestic markets for staple grains. |
| Keywords: | Demand and Price Analysis, International Relations/Trade |
| Date: | 2024–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:ags:cfcp15:344313 |
| By: | Roberto Chang; Andrés Fernández; Humberto Martinez |
| Abstract: | We study capital controls on outflows (CCOs) in situations of macroeconomic and financial distress. We present novel empirical evidence indicating that CCO implementation is associated with crises and declines in GDP growth. We then develop a theoretical framework that is consistent with such empirical findings and also yields policy and welfare lessons. The theory features costly coordination failures by foreign investors which can sometimes be avoided by suitably tailored CCOs. The benefits of CCOs as coordination devices can make them optimal even if CCOs entail deadweight losses; if the latter are large, however, CCOs are detrimental for welfare. We show that optimal CCOs can suffer from time inconsistency, and also how political opportunism may limit CCO policy. Hence government credibility and reputation building emerge as critical for the successful implementation of CCOs. |
| Keywords: | Capital Flows; Capital Controls; Coordination Failures; Reputation; Time Inconsistency |
| Date: | 2024–07–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/164 |
| By: | Yuval Boneh |
| Abstract: | Decentralized Finance (DeFi) money markets have seen explosive growth in recent years, with billions of dollars borrowed in various cryptocurrency assets. Key to the safety of money markets is the implementation of interest rates that determine the cost of borrowing, and govern counterparty exposure and return. In traditional markets, interest rates are set by risk managers, portfolio managers, the Federal Reserve, and a myriad of other sources depending on the market function. DeFi enables an algorithmic approach that typically relies on interest rates being directly dependent on market utilization. The benefit of algorithmic interest rate management is the system's continual response to market behaviors in real time, and thus an inherent ability to mitigate risks on behalf of protocols and users. These interest rate strategies target an optimal utilization based on the protocol's risk threshold, but historically lack the ability to compensate for excessive or diminished utilization over time. This research investigates contemporary DeFi interest rate management strategies and their limitations. Furthermore, this paper introduces a time-weighted approach to interest rate management that implements a Proportional-Integral-Derivative (PID) control system to constantly adapt to market utilization patterns, addressing observed limitations. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.10426 |
| By: | Walter Hernandez Cruz; Jiahua Xu; Paolo Tasca; Carlo Campajola |
| Abstract: | Fiat-pegged stablecoins are by nature exposed to spillover effects during market turmoil in Traditional Finance (TradFi). We observe a difference in TradFi market shocks impact between various stablecoins, in particular, USD Coin (USDC) and Tether USDT (USDT), the former with a higher reporting frequency and transparency than the latter. We investigate this, using top USDC and USDT liquidity pools in Uniswap, by adapting the Marginal Cost of Immediacy (MCI) measure to Uniswap's Automated Market Maker, and then conducting Difference-in-Differences analysis on MCI and Total Value Locked (TVL) in USD, as well as measuring liquidity concentration across different providers. Results show that the Silicon Valley Bank (SVB) event reduced USDC's TVL dominance over USDT, increased USDT's liquidity cost relative to USDC, and liquidity provision remained concentrated with pool-specific trends. These findings reveal a flight-to-safety behavior and counterintuitive effects of stablecoin transparency: USDC's frequent and detailed disclosures led to swift market reactions, while USDT's opacity and less frequent reporting provided a safety net against immediate impacts. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.11716 |