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on Monetary Economics |
| By: | Ding Dong; Zheng Liu; Pengfei Wang; Min Wei |
| Abstract: | Households often disagree in their inflation outlooks. We present novel empirical evidence that inflation disagreement weakens the power of forward guidance and conventional monetary policy. These empirical observations can be rationalized by a model featuring heterogeneous beliefs about the central banks’ inflation target. An agent who perceives higher future inflation also perceives a lower real interest rate and thus would like to borrow more to finance consumption, subject to borrowing constraints. Higher inflation disagreement would lead to a larger share of borrowing-constrained agents, resulting in more sluggish responses of aggregate consumption to changes in both current and expected future interest rates. This mechanism also provides a microeconomic foundation for Euler equation discounting that helps resolve the forward guidance puzzle. |
| Keywords: | inflation uncertainty and disagreement; inflation expectations; heterogeneous beliefs; borrowing constraints; monetary policy; forward guidance |
| JEL: | E21 E31 E52 E71 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98689 |
| By: | Okan Akarsu; Emrehan Aktug |
| Abstract: | We document the demand and supply driven components of inflation in Türkiye following the decomposition of Shapiro (2022). The results suggest that the recent acceleration in inflation starts with supply-driven inflation, but over time it transitioned into an inflationary environment driven by demand. Consistent with the theory, oil-supply and exchange rate shocks act to increase the supply-driven contribution, whereas monetary policy tightening acts to reduce the demand-driven contribution of inflation. This decomposition can potentially be a useful real-time tracker for policymakers. |
| Keywords: | Inflation decomposition, Demand, Supply, Exchange rate pass-through |
| JEL: | E12 E24 E31 E52 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2410 |
| By: | Peter Karadi; Anton Nakov; Galo Nuno Barrau; Ernesto Pasten; Dominik Thaler |
| Abstract: | We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides microfoundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. At the same time, when facing total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model. |
| Keywords: | state-dependent pricing, large shocks, nonlinear Phillips curve, optimal monetary policy |
| JEL: | E31 E32 E52 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1203 |
| By: | Max Breitenlechner; Martin Geiger; Mathias Klein |
| Abstract: | This paper empirically quantifies the importance of fiscal policy in shaping the monetary policy transmission mechanism and derives implications for monetary-fiscal interactions. First, we document that a contractionary monetary policy shock, besides lowering output and prices, leads to a pronounced adjustment in fiscal measures and a significant increase in the fiscal deficit. We then construct different structural counterfactuals, in which we shut down the endogenous responses of fiscal measures following a monetary policy shock. The impact of a monetary policy shock on output is more than halved by the endogenous adjustment in tax revenues, whereas the public transfer system significantly reduces the impact on prices. Thus, the tax system considerably improves the trade-off between price and output stabilization the central bank faces, whereas the transfer system worsens it. Finally, we show that changes in the fiscal framework can enhance monetary policy effectiveness. |
| Keywords: | Monetary policy, fiscal channel, monetary fiscal policy interaction, structural counterfactuals, Bayesian proxy structural VAR models. |
| JEL: | E32 E52 E63 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:inn:wpaper:2024-07 |
| By: | Laura Castillo-Martinez (Duke University); Ricardo Reis (London School of Economics (LSE)) |
| Abstract: | Central banks have a primary goal of price stability. They pursue it using tools that include the interest they pay on reserves, the size and the composition of their balance sheet, and the dividends they distribute. We describe the economic theories that justify the central bank’s ability to control inflation and discuss their relative effectiveness, in light of both theory and the historical record. We present alternative approaches as consistent with each other, as opposed to conflicting ideological camps. While interest-rate setting is often superior, having both a monetarist pillar and fiscal support is essential, and at times pegging the exchange rate or monetizing the debt is inevitable. |
| Keywords: | monetary policy, policy rules, determinacy, effectiveness |
| JEL: | E31 E52 E61 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cfm:wpaper:2433 |
| By: | Joachim Jungherr; Matthias Meier; Timo Reinelt; Immo Schott |
| Abstract: | We provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll-over needs and are therefore more exposed to fluctuations in the real interest rate (roll-over risk). (2.) These firms also have higher default risk and therefore react more strongly to changes in the real burden of outstanding nominal debt (debt overhang). Unconventional monetary policy, which operates through long-term interest rates, has larger effects on debt maturity but smaller effects on output and inflation than conventional monetary policy. |
| Keywords: | monetary policy; investment; corporate debt; debt maturity |
| JEL: | E32 E44 E52 |
| Date: | 2024–08–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98708 |
| By: | Andres Sanchez-Jabba; Erick Villabon-Hinestroza |
| Abstract: | This study examines the effect of different measures of inflation expectations on inflation dynamics in Colombia from 2009 to 2024. We estimate New Keynesian Phillips Curves (NKPC) and Structural VAR (SVAR) models using data from economic surveys and sovereign bond yields. Our results show that survey-based expectations have a greater passthrough to inflation, with a one percentage-point increase leading to a 0.8 percentage-point rise in inflation, compared to a 0.67 percentage-point rise from market-based expectations. These differences are attributed to how economic agents form expectations, influenced by asymmetric losses, forecasting costs, and information rigidities. Our findings provide crucial insights for monetary authorities, who increasingly rely on various measures of inflation expectations for policy analysis. Understanding the distinct effects of these measures helps central banks implement policies that avoid unintended consequences, such as unnecessary contractions in economic activity. |
| Keywords: | inflation expectations, inflation dynamics, new-Keynesian Phillips curve, generalised method of moments |
| JEL: | C26 D84 E12 E31 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1205 |
| By: | Anna Cieslak; Wenhao Li; Carolin Pflueger |
| Abstract: | Using a century of data, we show that Treasury convenience yield and inflation comove positively during the inflationary 1970s-1980s, but negatively pre-WWII and post-2000. An inflation decomposition reveals that higher supply inflation predicts higher convenience, while lower demand inflation follows higher convenience. In our model, inflationary cost-push shocks raise the opportunity cost of holding money and money-like assets, inducing higher convenience, as in 1970s-1980s. Conversely, liquidity demand shocks drive up convenience but lower consumption demand and inflation in the model, as pre-WWII and post-2000. By linking the evidence to macroeconomic drivers, our results challenge the notion that inflation directly depresses Treasury convenience. |
| JEL: | E44 E58 G01 G28 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32881 |
| By: | Martín Almuzara; Argia M. Sbordone |
| Abstract: | We discuss the concept of core inflation and its relevance for policymakers and then review a variety of approaches that have been pursued for the construction of informative core measures. After illustrating some empirical patterns displayed by U.S. inflation data and discussing conceptual issues around measurement, we provide a unified framework to interpret various widely used core measures and compare their relative properties. |
| Keywords: | inflation; core inflation |
| JEL: | E31 E32 E52 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:98692 |
| By: | James Costain (BANCO DE ESPAÑA); Anton Nakov (BANCO DE ESPAÑA) |
| Abstract: | We review models of nominal price adjustment based on optimizing or near-optimal behavior, including menu cost models, generalized hazard function models and models of frictional decisions. We also discuss the role of real rigidities and assess the models’ success in explaining retail microdata and inflation dynamics. |
| Keywords: | sticky prices, nominal rigidities, state-dependent prices, inflation, menu costs, control costs, rational inattention |
| JEL: | E31 E71 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2416e |
| By: | Knut Are Aastveit (Norges Bank and BI Norwegian Business School); Jamie Cross (The University of Melbourne, & BI Norwegian Business School); Francesco Furlanetto (Norges Bank); Herman K. Van Dijk (Erasmus University Rotterdam and Norges Bank) |
| Abstract: | The Fed’s policy rule switches during the different phases of the business cycle. This finding is established using a dynamic mixture model to estimate regime-dependent Taylor-type rules on US quarterly data from 1960 to 2021. Instead of exogenously partitioning the data based on tenures of the Fed chairs, a Bayesian framework is introduced in order to endogenously select timing and number of regimes in a data-driven way. This agnostic approach favors a partitioning of the data based on two regimes related to business cycle phases. Estimated policy rule coefficients differ in two important ways over the two regimes: the degree of gradualism is substantially higher during normal times than in recessionary periods while the output gap coefficient is higher in the recessionary regime than in the normal one. The estimate of the inflation coefficient largely satisfies the Taylor principle in both regimes. The results are substantially reinforced when using real-time data. |
| Keywords: | Monetary policy, Taylor rules, mixed distributions, regime-switching |
| JEL: | C32 C51 E42 E52 E58 |
| Date: | 2024–05–10 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20240030 |
| By: | Baubeau, Patrice; Teixeira, Mateo |
| Abstract: | This article addresses the growing gap in the literature between qualitative data on prices and money in France around World War II, and the available CPI. It gathers archival price data to calculate a new CPI for 1938-1949, incorporating both official and black-market prices. The study demonstrates the adequacy of available sources and the robustness of the new CPI, both in its construction and when compared to contemporary analyses. Three key findings are that France did not experience exponential price acceleration; that dictatorship (1940-1944) was no more effective at price control than democracy (1945-1949); and that the 1944-1945 wage increases had a minor impact on inflation, questioning the price-wage loop explanation of France’s post-war inflation. |
| Keywords: | Inflation; Prices; Black markets; Repression; Politics; Public statistics, History; Political economy; France, World War 2 |
| JEL: | E31 N0 N01 N1 N44 P4 P44 P48 |
| Date: | 2024–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121621 |
| By: | Kristin Forbes; Jongrim Ha; M. Ayhan Kose |
| Abstract: | We analyse cycles in policy interest rates in 24 advanced economies over 1970-2024, combining a new application of business cycle methodology with rich time-series decompositions of the shocks driving rate movements. “Rate cycles†have gradually evolved over time, with less frequent cyclical turning points, more moderate tightening phases, and a larger role for global shocks. Against this backdrop, the 2020-24 rate cycle has been unprecedented in many dimensions: it features the fastest pivot from active easing to a tightening phase, followed by the most globally synchronized tightening, and an unusually long period of holding rates constant. It also exhibits the largest role for global shocks— with global demand shocks still dominant, but an increased role for global supply shocks in explaining interest rate movements. Inflation and the growth in output and employment have, on average, largely returned to historical norms for this stage in a tightening phase. Any recalibration of interest rates going forward should be gradual, however, taking into account the interactions between increasingly important global factors and domestic circumstances, combined with uncertainty as to whether rate cycles have reverted to pre-2008 patterns. |
| Keywords: | monetary policy, oil prices, demand shocks, supply shocks, ECB, Federal Reserve |
| JEL: | E52 E31 E32 Q43 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-54 |
| By: | Benjamin Kongolo (Université de Kinshasa, Université Pédagogique Nationale) |
| Abstract: | Among the factors that can frustrate a country's monetary policy is its economic environment. Indeed, the economic environment refers to all the external factors which influence the decisions of the authorities. This study follows this logic by analyzing the impact of the economic environment of the DRC on the effectiveness of the monetary policy of the BCC. The economic environment of the DRC is characterized by dollarization, exchange rate volatility, high public debt and balance of payments imbalance. To verify the impact of this environment on monetary policy, the study used the ARDL model without knowing which the study came to the conclusion that, in an environment characterized by the factors above, the Monetary policy is ineffective in stabilizing the general price level. |
| Keywords: | Politique monétaire environnement économique modèle ARDL Monetary policy economic environment ARDL model, Politique monétaire, environnement économique, modèle ARDL Monetary policy, economic environment, ARDL model |
| Date: | 2024–07–29 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04664234 |
| By: | Kazutoshi Sugimura (Bank of Japan); Masaki Bessho (Bank of Japan) |
| Abstract: | Recently, initiatives related to "deposit tokenization" have begun to expand globally. With the emergence of stablecoins, these initiatives seem to seek an extension of functionality in payment and settlement systems by applying new technologies, such as distributed ledger technology (DLT), to bank deposits as a traditional means of payment. The main reason such initiatives prefer leveraging deposit money is said to be its affinity with the two-tier monetary system and possibly with existing laws or regulations. However, there remain some issues that require further clarification on how payments with tokenized deposits are categorized in the private law system, and how smart contracts provide implications for non-functional requirements and legal certainty. Multifaceted discussions on deposit tokenization will therefore continue to be necessary, with an eye toward future payment and settlement systems. |
| Date: | 2024–08–30 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojrev:rev24e09 |
| By: | Garofalo, Marco (Bank of England); Rosso, Giovanni (University of Oxford); Vicquéry, Roger (Bank of England) |
| Abstract: | We study a unique episode of aggregate transition to dominant currency pricing: the dollarisation of UK exports in the aftermath of the 2016 Brexit referendum. Following the 2016 depreciation of the pound, the share of non‑EU UK exports invoiced in the UK domestic currency decreased sharply 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. Relying on transaction‑level data on the universe of UK trade and employing shift‑share and event‑study identification strategies, we show that large foreign‑exchange movements can generate an aggregate transition in invoicing choices. This is driven by firms with low levels of operational hedging, that is whose exports are not denominated in the same currency as their import. We find that this currency‑mismatch valuation channel accounts for most of the transition to dollar pricing, above and beyond effects from strategic complementarities and market power. Finally, we show that such a shift in export pricing has important aggregate consequences for export pass‑through and the allocative effects of price rigidities: a US$ appreciation depresses demand for UK exports by twice as much than before this ‘dominant currency pricing transition’. |
| Keywords: | Invoicing currency of trade; dominant currency pricing; foreign‑exchange mismatch; firm‑level data; exchange‑rate pass-through; Brexit |
| JEL: | F14 F31 F41 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1074 |
| By: | Roger E.A. Farmer |
| Abstract: | I introduce money into an incomplete markets model with heterogeneous agents and uninsurable income risk. I show that the model exhibits both non-monetary and monetary equilibria, with the latter existing when income risk is sufficiently high. Using numerical methods, I characterize the properties of these equilibria and analyze their stability. I find that for a range of realistic parameter values, the non-monetary equilibrium is dynamically inefficient and indeterminate, and there is a second determinate monetary equilibrium with positive valued fiat money. |
| JEL: | D52 E30 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32836 |
| By: | Škrinjarić, Tihana (Bank of England) |
| Abstract: | This is a survey of the literature on Growth-at-Risk (GaR) for macroprudential policy stance assessment. After acknowledging the main findings and contributions, we focus on the current challenges that are present in the literature. Key challenges are the measurement and intensity of the policy variable, and the mitigation of endogeneity issues. We suggest improvements on ways to measure the policy itself and its intensity, review policy endogeneity adjustment and different sources of data. Finally, we conclude the review providing insights on future pathways of GaR macroprudential methodology. |
| Keywords: | Systemic risk; financial conditions; quantile regression; policy assessment; policy stance |
| JEL: | C22 E32 E44 E58 G01 G28 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1075 |
| By: | Bluwstein, Kristina (Bank of England); Patozi, Alba (Bank of England) |
| Abstract: | We construct a new data set of macroprudential policy announcements for the United Kingdom and estimate their effect on systemic risk, using a high-frequency identification approach. First, by examining a sample of the largest UK-listed banks, we identify macroprudential policy announcement shocks that were unanticipated by the financial markets. Second, we study the effects of market-based macroprudential policy surprises on systemic risk in a local projection framework. We find that tighter than expected macroprudential policy announcements contribute to a substantial reduction in perceived systemic risk in the short run, with effects persisting for several months. The reduction is mostly attributed to the reaction in equity and bond markets. |
| Keywords: | Macroprudential policy; systemic risk; high-frequency identification; policy announcements |
| JEL: | E58 G14 G18 G21 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1080 |
| By: | Jeguirim, Khaled; Ben Salem, Leila |
| Abstract: | We follow a non-linear dynamic correlation approach using a combination of a DCC-GARCH model and a copula model to capture the dependence between oil price changes and inflation in Tunisia. The case of Tunisia is particularly instructive since, after having been an exporter and a major producer, it became a net oil importer in the 2000s. The study, based on monthly data spanning decades, selects a Gumbel copula and shows that beyond weak average dependencies, there is a strong correlation between extreme values, suggesting that inflation in Tunisia is more sensitive to extreme (positive) variations in oil prices than to average variations. The implications of these empirical results for economic policy are crucial for the Tunisian economy. |
| Keywords: | oil price, inflation, copula, dynamic conditional correlation, Tunisia |
| JEL: | E31 Q41 Q43 |
| Date: | 2024–07–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121616 |
| By: | Hetzel, Robert (Mercury Publication) |
| Abstract: | Abstract not available. |
| Date: | 2023–07–19 |
| URL: | https://d.repec.org/n?u=RePEc:ajw:wpaper:12441 |
| By: | Ceesay, Habib; Limbe, Medad |
| Abstract: | Remittances are crucial to The Gambian economy, providing a major source of foreign exchange and sustaining the livelihoods of numerous households. In addition, they help in offsetting trade deficit and stabilize the country's external position. However, substantial external inflows into developing economies can lead to an appreciation of the domestic currency, making exports more expensive and reducing competitiveness. This study investigates the impact of remittances on the real effective exchange rate in The Gambia using monthly data from January 2009 to December 2019. Employing the Autoregressive Distributive Lag (ARDL) model, the study finds evidence of a long run cointegrating relationship among the variables. The empirical results reveal that remittance inflows have a positive significant effect on the real effective exchange rate in the long run, indicating that higher remittances lead to an appreciation of the Gambian Dalasi. |
| Keywords: | Remittance, ARDL, the Gambia, exchange rate |
| JEL: | E52 E58 |
| Date: | 2024–08–20 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121774 |
| By: | Noritaka Fukuma (Bank of Japan); Tomiyuki Kitamura (Bank of Japan); Kohei Maehashi (Bank of Japan); Naoki Matsuda (Bank of Japan); Keita Takemura (Bank of Japan); Kota Watanabe (Bank of Japan) |
| Abstract: | This paper examines the impact of the Bank of Japan (BOJ)’s Quantitative and Qualitative Easing (QQE) and Yield Curve Control (YCC) on the functioning of the Japanese government bond (JGB) market using panel data for JGB issues. The main results can be summarized in the following three points. First, regarding the impact on transaction volume in the JGB market, JGB purchases by the BOJ (i.e. increase in flow) increase transaction volume on average, while the BOJ’s increased holdings of JGBs (i.e. increase in stock) and its conduct of continuous fixed-rate purchase operations decrease transaction volume. However, if the BOJ conducts JGB purchases when its share of JGB holdings exceeds a certain threshold, transaction volume will decrease. Second, regarding the impact on bid-ask spreads in the JGB market, while JGB purchases by the BOJ reduce these spreads, the increase in the share of JGBs held by the BOJ will lead to a nonlinear widening of the spreads. Third, regarding the impact on the shape of the yield curve, an increase in the BOJ’s holdings of certain JGB issues and its conduct of continuous fixed-rate purchase operations will lead to a downward distortion in the yield curve. |
| Keywords: | QQE; YCC; JGB market; market functioning; market liquidity |
| JEL: | C23 D4 D53 E58 G12 |
| Date: | 2024–08–30 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e09 |
| By: | Hongcheng Ding; Xuanze Zhao; Zixiao Jiang; Shamsul Nahar Abdullah; Deshinta Arrova Dewi |
| Abstract: | Accurate forecasting of the EUR/USD exchange rate is crucial for investors, businesses, and policymakers. This paper proposes a novel framework, IUS, that integrates unstructured textual data from news and analysis with structured data on exchange rates and financial indicators to enhance exchange rate prediction. The IUS framework employs large language models for sentiment polarity scoring and exchange rate movement classification of texts. These textual features are combined with quantitative features and input into a Causality-Driven Feature Generator. An Optuna-optimized Bi-LSTM model is then used to forecast the EUR/USD exchange rate. Experiments demonstrate that the proposed method outperforms benchmark models, reducing MAE by 10.69% and RMSE by 9.56% compared to the best performing baseline. Results also show the benefits of data fusion, with the combination of unstructured and structured data yielding higher accuracy than structured data alone. Furthermore, feature selection using the top 12 important quantitative features combined with the textual features proves most effective. The proposed IUS framework and Optuna-Bi-LSTM model provide a powerful new approach for exchange rate forecasting through multi-source data integration. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.13214 |
| 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. |
| JEL: | F21 F38 F41 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32877 |
| By: | Brian Zhu |
| Abstract: | Stablecoins have historically depegged due from par to large sales, possibly of speculative nature, or poor reserve asset quality. Using a global game which addresses both concerns, we show that the selling pressure on stablecoin holders increases in the presence of a large sale. While precise public knowledge reduces (increases) the probability of a run when fundamentals are strong (weak), interestingly, more precise private signals increase (reduce) the probability of a run when fundamentals are strong (weak), potentially explaining the stability of opaque stablecoins. The total run probability can be decomposed into components representing risks from large sales and poor collateral. By analyzing how these risk components vary with respect to information uncertainty and fundamentals, we can split the fundamental space into regions based on the type of risk a stablecoin issuer is more prone to. We suggest testable implications and connect our model's implications to real-world applications, including depegging events and the no-questions-asked property of money. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.07227 |
| By: | Juan R. Hernández |
| Abstract: | The neutral band is the interval where deviations from covered interest parity (CIP) are not considered profitable arbitrage opportunities. After the great financial crisis, deviations from CIP are no longer short-lived, exposing some limitations of the previous approaches to estimate the neutral band. In this paper, I argue that the one-step-ahead forecast distribution of deviations from CIP, with a time-varying variance component, provides an intuitive estimate of the neutral band. I use data for the Pound Sterling-US Dollar cross from 2000 to 2021, and find that a stochastic volatility model outperforms several alternative models in terms of fit and forecasting capability. The model estimates neutral band that are intuitive and consistent with market dynamics, widening during financial stress periods and consistent with no arbitrage. The results are maintained when I use data from the Mexican Peso-US Dollar cross. |
| Keywords: | covered interest parity; carry trade; stochastic volatility; predictive distribution |
| JEL: | C52 C58 F31 F37 G15 G17 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1206 |
| By: | AGBOTON, Damien Joseph; ; |
| Abstract: | In this article, we use recently developed panel causality and cointegration techniques to examine the long-term relationship between inflation and economic growth in the 8 WAEMU countries. A panel of 256 observations was thus constituted from the IMF (WDI) and CBWAS database. Our results highlight a unidirectional causality between inflation and economic growth and support the view that public spending controls can reduce inflation. Economic growth is the main channel through which economic policy can influence inflation. Furthermore, improving the quality of the workforce can further strengthen economic growth. |
| Keywords: | Inflation Economic growth Panel causality Panel cointegration WAEMU |
| JEL: | E2 E3 E31 |
| Date: | 2024–08–24 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121814 |
| By: | Knake, Sebastian |
| Abstract: | In his article, Sebastian Knake challenges the general assumption that traditional savings accounts in the US disappeared naturally as a result of the combination of interest rate regulation and extraordinarily high market interest rates during the stagflation period. By comparing the US experience with simultaneous developments in West Germany, he finds that the opportunity costs of owning a regular passbook were comparable in both countries. In contrast to the US case, however, the passbook remained a cornerstone of household saving in Germany. Drawing upon research in several bank archives in the US and Germany, Knake explains these divergent developments in terms of fundamental differences in how banks and their customers communicated over prices. In the US, a peculiar combination of regulative rules forced banks, and especially savings institutions, to aggressively promote new types of bank accounts that were introduced by federal regulation authorities, thereby increasing nominal interest rate expectations. In Germany, by contrast, banks confined information about advantageous investment opportunities to the smallest possible share of the customer base. These divergent communication strategies reflect a difference in the balance of power in the bank-customer relationship. German customers depended on their primary-and in most cases only-bank relationship to acquire information on alternative investments, while US customers could draw on several relationships with banks and savings institutions to obtain the relevant information. Thus, the fate of the passbook was sealed by the ability or inability of banks to keep their customers in the dark about the real opportunity costs of passbook saving. |
| Keywords: | Savings, Deposits, Interest Expectations, Portfolio Choice, Financial History, Passbook, Comparative History |
| JEL: | G14 G21 N20 N22 N24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:pp1859:301873 |
| By: | Fabien Clive Ntonga Efoua (FSEG, UYII-Soa - Faculté de Sciences Économiques et de Gestion - Yaoundé II, CEDIMES - CEDIMES - Centre d'Etudes sur le Développement International et les Mouvements Economiques et Sociaux) |
| Abstract: | Based on the observation that there is chaos in the crypto-world and the need to regulate this ecosystem, this paper proposes: (i) to revisit the genesis and draw up a state of the art concerning the different forms of cryptocurrencies, (ii) suggest a typology in order to (iii) review the directions that could be taken by their development. From an academic view, in addition to Economics, this could be of interest to many other disciplinary fields, particularly Computer science, Law and History. Methodologically, this paper is based on a historical and dialectical approach. That allows us to distinguish two main types of cryptocurrencies: those which are "decentralised" and those which are "sovereign". This common categorisation can be refined according to some specific criteria, in particular: the nature of the digital flow, the consensus algorithm, the issuer and the core technology. Thus, we can differentiate seven sub-categories of cryptocurrencies: the "primitive" digital currencies, the Bitcoin, the Altcoins, the Stablecoins and what we call the Iotcoins, on the one hand; then the Central Bank Digital Currencies (CBDC) and what we call the National Digital Currencies (NDC) on the other. From our view, given the volatility of the decentralised cryptocurrencies, the security aspects and their propensity to finance the shadow economy, their coexistence with the sovereign cryptocurrencies will undoubtedly arise. Concerning particularly the (future) Govcoins, the CBDC seem to have more support than the NDC, given the everlasting issue of temporal inconsistency. |
| Abstract: | Partant du constat d'un chaos généralisé dans la cryptosphère et de la nécessité d'une régulation de cet écosystème, cet article propose : (i) de revisiter la genèse et dresser un état de l'art relatif aux différentes formes de cryptomonnaies, (ii) d'en proposer une typologie et (iii) de conjecturer sur quelques tendances qui devraient marquer leur processus évolutif ; se situant de fait à un carrefour entre l'Economie, l'Informatique, le Droit et l'Histoire. La méthodologie s'appuie sur une approche dialectique. Cette dernière permet de distinguer deux principaux types de cryptomonnaies : celles dites « décentralisées » et celles dites « souveraines ». Cette catégorisation peut être affinée selon des critères plus spécifiques, notamment : la nature du flux digital, l'algorithme de consensus, l'émetteur et la technologie de base (avec ou sans blockchain). Nous parvenons ainsi à différencier sept sous-catégories de cryptomonnaies : les monnaies numériques « primitives », le Bitcoin, les Altcoins, les Stablecoins, et ce que nous appelons les Iotcoins d'une part ; puis les Monnaies Numériques de Banque Centrale (MNBC) et ce que nous appelons les Monnaies Numériques Nationales (MNN) d'autre part. Selon notre analyse, compte tenu de la volatilité des cryptomonnaies décentralisées, des risques de sécurité qu'elles posent et de leur propension à participer au financement de l'économie souterraine, la question de leur cohabitation avec les cryptomonnaies souveraines se posera inévitablement. Par ailleurs, en ce qui concerne les Govcoins, les MNBC semblent susciter davantage d'adhésion que les MNN, eu égard à la sempiternelle question de l'incohérence temporelle. |
| Keywords: | Digital currencies, Bitcoin, Altcoins, Stablecoins, Govcoins, Monnaies numériques, Débats et Tendances Monnaies numériques, Monnaies Numériques de Banque Centrale |
| Date: | 2024–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04660619 |
| By: | Elijah Broadbent; Huberto M. Ennis; Tyler Pike; Horacio Sapriza |
| Abstract: | he provision of bank credit to firms and households affects macroeconomic performance. We use survey measures of changes in bank lending standards, disaggregated by loan category, to quantify the effect of changes in banks’ attitudes toward lending on aggregate output, inflation, and interest rates. Bank lending to businesses is particularly important for macroeconomic outcomes, with peak effects on output of around half a percentage point after four quarters of the initial shock. These effects depend on the stage of the business cycle and the proximity of the short-term interest rate to its effective lower bound. The effects are larger when output is growing below trend and when the interest rate is away from its lower bound. We also find that the response of the economy to lending-standards shocks is asymmetric, with tightening shocks having larger effects on output. |
| Keywords: | Credit Supply; Macroeconomic activity; Loan Portfolio Composition |
| JEL: | E32 E44 G21 |
| Date: | 2024–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:98690 |
| By: | Marco Pinchetti (Bank of England; Centre for Macroeconomics (CFM)) |
| Abstract: | Episodes characterized by heightened geopolitical tensions are often associated with adverse developments in energy markets, and particularly in oil markets. This paper investigates the consequences of different classes of geopolitical risk shocks for inflation and economic activity, focusing on the role of energy markets. By exploiting the comovement of the Caldara and Iacoviello (2022) GPR index and oil prices around selected episodes via high-frequency sign restrictions a la Jarocinski and Karadi (2020) and narrative sign restrictions a la Antolin-Diaz and Rubio-Ramirez (2018), the paper disentangles the impact of geopolitical shocks associated with disruptions on energy markets from geopolitical shocks associated with economic contractions unrelated to energy markets. These two classes of shocks are associated with distinct macro consequences. A positive surprise in the GPR index associated with geopolitical macro shocks is on average contractionary and deflationary. On the other hand, a positive surprise in the GPR index associated with geopolitical energy shocks is on average contractionary and inflationary. The identification strategy is validated at sector-level by exploiting the heterogeneity in the response of 57 sectors of the US economy to different classes of geopolitical shocks. Sectors characterized by higher energy intensity are subject to larger output losses and price increases in response to geopolitical energy shocks, while the same does not hold in response to geopolitical macro shocks. |
| Keywords: | Geopolitical Risk, Business Cycles, Energy, High-Frequency Sign Restrictions, High-Frequency Identification, Narrative Sign Restrictions |
| JEL: | E31 E32 F31 Q35 Q38 Q43 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cfm:wpaper:2431 |
| By: | Benjamin L. Collier; Daniel A. Hartley; Benjamin J. Keys; Jing Xian Ng |
| Abstract: | We estimate the causal effect of emergency credit on households' finances after a negative shock. To do so, we link application data from the U.S. Federal Disaster Loan program, which provides loans to households that have uninsured damages from a federally-declared natural disaster, to a panel of credit records before and after the shock. We exploit a discontinuity in the loan approval rules that led applicants with debt-to-income ratios below 40% to be differentially likely to be approved. Using an instrumented difference-in-differences research design, we find that credit provision at the time of a shock significantly reduces severe financial distress, decreasing the likelihood of filing for bankruptcy by 61% in the three years following the disaster. We explore mechanisms using additional quasi-experimental variation in interest rates, finding support for a liquidity-based explanation. Credit provision in a time of crisis has real consumption effects in the form of additional car purchases even 3 years after loan receipt. Our findings suggest that well-timed liquidity provided to households in acute need can have substantial and persistent positive effects. |
| JEL: | D14 G23 G28 H81 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32845 |
| By: | Moussa, Mohamed Aymen Ben; Hedfi, Chedia |
| Abstract: | Liquidity is the risk to a bank's earnings and capital arising from its inability to timely meet obligations when they come due without incurring unacceptable losses. Bank management must ensure that sufficient funds are available at a reasonable cost to meet potential demands from both fund providers and borrowers. Also, Lending is the process by which a financial institution provides funds to a borrower. Often called a lender, the institution typically receives interest in return for the loan. Lending in banking benefits lenders and borrowers alike by increasing liquidity within the marketplaces where loans are originated and used. This article aims to identify the impact of liquidity on bank lending. We used a sample of 12 banks in Tunisia over the period (2005….2022). By employing a method of panel static we found that liquidity has a significant impact on bank lending. |
| Keywords: | Liquidity, bank, lending, Tunisia |
| JEL: | M21 |
| Date: | 2024–06–28 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121669 |
| By: | Benjamin Kongolo (Université de Kinshasa, Université Pédagogique Nationale) |
| Abstract: | This study, which focuses on the issue of sovereignty in the DRC, has set itself the objective of verifying the sovereignty of the national currency in the DRC. To achieve this, the study is divided into 3 points which respectively dealt with generalities on monetary sovereignty, statistical verification of sovereignty and finally empirical analysis of monetary sovereignty. After analysis by the ARDL model, the study came to the conclusion that the Congolese national currency does not meet the criteria of a sovereign currency, because it cannot be used to stabilize the general level of prices and boost the economic growth. |
| Abstract: | Cette étude qui porte sur la problématique de la souveraineté en RDC s'est fixé comme objectif de vérifier la souveraineté de la monnaie nationale en RDC. Pour y parvenir, l'étude est scindée en 3 points qui ont traité respectivement des généralités sur la souveraineté monétaire, vérification statistique de la souveraineté et enfin analyse empirique de la souveraineté monétaire. Après analyse par le modèle ARDL, l'étude est arrivée à la conclusion selon laquelle, la monnaie nationale congolaise ne remplit pas les critères d'une monnaie souveraine, car elle ne peut être utilisé pour stabiliser le niveau général des prix et de booster la croissance économique. |
| Keywords: | souveraineté monétaire modèle ARDL monetary sovereignty ARDL model, souveraineté monétaire, modèle ARDL monetary sovereignty, ARDL model |
| Date: | 2024–08–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04667135 |
| By: | Mohamed Elsayed, Ashraf |
| Abstract: | The thesis hence aims at studying the economic dimensions of capital flows from developing countries phenomenon with an application of Egypt’s Economy The important results stem from this work are as fllowing: 1. There is no agreement in the economic literature on the definition of the capital flows from developing countries. This may lead to different estimations of the volume of the phenomenon. 2. Studying the trend and simultaneity of capital flows from the developing countries as a whole and on the level of the geographical regions and from Egyptian economy showed the following points: 2/1: The capital outflows are fluctuated, during the period of study, (1977 to 2004). 2/2: The simultaneity in capital flows from the developing countries on the geographical region has been achieved from 1977 to 1979, 1982 to 1986 and during year 1987. 2/3: The capital flows from the Egyptian economy are not in one trend, they are the most volatile compared to the capital flows from the developing countries on the Aggregate level and from the Middle East and North Africa during the period from 1977 to 2004. 3. Results of the econometric model of the determinants of capital flows from the Egyptian economy are represented in the following. 3/1: There is a positive relationship between the external debt and the capital flows from the Egyptian economy with statistically Significant at 0% level; the increase of the external debt with one billion dollars leads to the increase of the capital flows from the Egyptian economy as a percentage of the Gross Domestic production of 1.5%. 3/2: There is a positive relationship between the Capital Gains of the Egyptian stock exchange and the capital flows from the Egyptian economy with statistically Significant at 0% level; the increase of the Capital Gains of the Egyptian stock exchange by 1% leads to the increase of the capital flows from the Egyptian economy to the Gross Domestic production ratio by 0.1%. 3/3: There is a positive relationship between the financial repression and the capital flows from the Egyptian economy with statistically Significant at 1% level; The financial repression rise of 1% leads to the increase of the capital flows from the Egyptian economy to the Gross Domestic production ratio by 0.03%. 3/4: There is a negative relationship between the interest rates on the Domestic Deposits and the capital flows from the Egyptian economy at level of statistically Significant 0% , the increase of interest rates on the deposits by 1% leads to reduction in the ratio of the capital flows from the Egyptian economy to the Gross Domestic production by 1.41%. 3/5: There is a positive relationship between Egyptian exchange rate overvaluation and capital flows from Egyptian economy at level of statistically Significant at 1%; the overvaluation of Egyptian exchange rate with only one leads the increase of the ratio of capital flows from the Egyptian economy to the Gross Domestic production by 8.97%. 3/6: There is a positive relationship between inflation and the capital flows from the Egyptian economy at level of statistically Significant 1%; increase of consumers prices index by 1% leads to the increase of capital flows from the Egyptian economy to the Gross Domestic production ratio by 4.46%. 3/7: There is a positive relationship between the political instability and the economic crises and the capital flows from the Egyptian economy at level of statistically Significant 0%; the political instability and the economic crises leads to the increase of capital flow from the Egyptian economy to the GDP ratio by 4.05%. 3/8: The econometric model explains 92.3% of changes in the ratio of capital flows from Egyptian economy while the rest 7.7% is explained by other variables that are specified outside of the model at level of statistically Significant at 0%. 4. Results of the econometric model of the capital flows effects from the Egyptian economy on the economic growth in the long run by using the “Cointegration” are represented in the following: 4/1: There is a negative relationship between the capital flows from the Egyptian economy and the economic growth in the long run at level of statistically Significant of 10%; increase of the ratio of capital outflows - that are estimated by the world bank methodology - to the GDP leads to the decrease of GDP per Capita by 1.01%. 4/2: There is a negative relationship between the capital flows from the Egyptian economy and annual growth rate of population in the long run at level of statistically Significant of 1%; increase of the annual growth rate of population by 1%, leads to decrease of GDP per capita by 3.23%. 4/3: There is a positive relationship between the capital flows from the Egyptian economy and the technological improvements in the long run at level of ratio Significant of 1%; the one percent (1%) technological improvements radio leads to the increase of GDP per capita by 0.43%. 4/4: The econometric model explains 69.3% of changes in the long run economic growth, while 30.7% is explained by other variables that are specified outside the model at level of statistically Significant of 1%. 5. The developing countries must depend on restricting capital outflows for a fixed time to avoid dodge of these restrictions and give the opportunity for applying the economic reform policies and eliminating economic distortion, in facing the phenomenon of capital flows from developing countries. |
| Keywords: | Economic Dimensions - Capital Flows - Developing Countries - Egyptian Economy |
| JEL: | F32 |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121674 |
| By: | Mouré, Christopher |
| Abstract: | Much of the economic analysis of banking crises focuses on the interplay between concentration and stability. A common theory is that concentration is associated with greater stability, whereas competition is associated with instability. In this view, there is a trade-off between, on the one hand, the higher prices and higher profits associated with a banking cartel, and on the other, frequent banking crises and lower prices caused by a fragmented sector. However, this theory is not entirely convincing. Principally, it tends to treat competition and concentration as independent variables, whereas in reality, causality works both ways: banks actively work to transform the structure of the system and transcend apparent constraints – whether through coordinating interest rates, influencing policy, or by transforming the business landscape through corporate amalgamation. In addition, the last two major banking crises in the US occurred in dramatically different conditions of concentration from one other, complicating any obvious empirical connection between concentration and stability. In this paper, I try to move beyond this hypothesis by investigating the relationship between corporate concentration and banking stability through the lens of organized power. Using a combination of quantitative and qualitative analyses, I make two claims. First, since the 1980s, the differential profitability of large banks has been driven by corporate amalgamation. Second, crises tend to be followed by an increase in the pace of amalgamation. As a result, since the 1980s, banking crises have preceded a dramatic redistribution of resources and control to a handful of large banks. While it is not clear that concentration makes a banking crisis less likely, the evidence suggests that crisis makes concentration more likely. Though the research presented here is only tentative and exploratory, it indicates that since the 1980s, large banks have remade the business and regulatory landscape in ways that defy the logic of a simple binary relationship between concentration and stability, and that this needs to be taken into account when analysing the dynamics of banking crises. |
| Keywords: | banks, capital as power, concentration, crisis, mergers & acquisitions, United States |
| JEL: | G G2 G3 G01 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:capwps:301397 |
| By: | Rüdiger Fahlenbrach; Minsu Ko; René M. Stulz |
| Abstract: | Bank payout policy is strongly affected by regulation and politics, especially for the largest banks. Banks, but not industrial firms, have consistently lower payouts in times of high regulation uncertainty and under democratic presidents. After the Global Financial Crisis, bank regulators’ influence on payout policies of the largest banks increases sharply and repurchases become more important than dividends for these banks. Repurchases respond more to regulatory climate changes than dividends. The stock-price reaction of the largest banks to the election of Donald Trump is larger than for small banks or industrial firms, and their repurchases increase sharply afterwards. |
| JEL: | G21 G28 G35 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32770 |