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on Monetary Economics |
| By: | Dräger, Lena; Floto, Maximilian; Schröder, Marina |
| Abstract: | We provide evidence for an expectation gap, where risk-averse as well as impatient households and experts provide significantly higher prior inflation forecasts. Using a survey randomized control trial (RCT), we can show that information about inflation forecasts closes this expectations gap. The group, whose prior expectations was farthest from the treatment information, tends to adjust posterior expectations more strongly. However, we find no such effect with respect to forecasts for energy prices, which are less informative. Our results suggest that the expectation gap seems to be partially due to differences in information seeking between different types of individuals. |
| Keywords: | Inflation expectations, patience, risk preference, households, experts, survey experiment, randomized control trial (RCT) |
| JEL: | E52 E31 D84 D90 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:han:dpaper:dp-726 |
| By: | Heike Joebges; Camille Logeay |
| Abstract: | The strong increase in inflation rates in Europe at the end of 2022 is in stark contrast to more than a decade of very low developments within the euro area. This time, profit hikes are under more scrutiny than wage increases. As changes in profits in relation to those of wages have the potential to change the functional income distribution, we analyse past and current price developments by decomposing the contributions to domestic prices, measured by the GDP deflator, into those stemming from unit labour costs, those from unit profits, and those from net unit taxes on production. In order to judge those developments as stability-oriented or not, we follow the literature that recommends that national wage developments should be in line with the inflation target of the ECB plus the increase in labour productivity. Such a development, if also applied to profits, would not kick-start an inflationary process and would support a stable functional income distribution. Our descriptive analysis covers annual inflation contributions from unit labour costs and unit profits from 1999 to 2023 in 19 countries of the Euro Area. According to our results, developments have been heterogeneous among the studied countries since the introduction of the euro and continue to show differences in price developments. Yet, it is striking that unit profit increases have recently been far above levels observed in the past in all member countries, and are higher than for unit labour cost increases. Even if it is too early to ignore the possibility of only temporary cyclical profit developments, unit profit developments cannot be explained by developments of GDP, interest rates and terms-of-trade according to our out-of-sample forecast. Yet, more detailed data is necessary for explaining the factors behind this increase in unit profits at an aggregate level. |
| Keywords: | Inflation, GDP deflator, functional income distribution, wage rule, profit rule, gross operating surplus, unit labour costs |
| JEL: | E25 E31 E64 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:fmmpap:107-2024 |
| By: | Goldbach, Stefan; Nitsch, Volker |
| Abstract: | This paper explores a monetary experiment, the adoption of Bitcoin as legal tender in El Salvador in 2021, to analyze the impact of digital currencies on international capital flows. Using a difference-in-differences approach, we find that, instead of making transfers easier, El Salvador's official cross-border financial activity has decreased after the monetary change. This finding may reflect an increase in uncertainty. However, it is also in line with findings that link digital assets to illegal activity as previously officially recorded financial transfers may have been replaced by unrecorded activities. |
| Keywords: | crypto-assets, digital currency, legal tender, bitcoin |
| JEL: | E42 E58 F21 F32 F38 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:darddp:302552 |
| By: | Marco Del Negro |
| Abstract: | The post-COVID years have not been kind to professional forecasters, whether from the private sector or policy institutions: their forecast errors for both output growth and inflation have increased dramatically relative to pre-COVID (see Figure 1 in this paper). In this two-post series we ask: First, are forecasters aware of their own fallibility? That is, when they provide measures of the uncertainty around their forecasts, are such measures on average in line with the size of the prediction errors they make? Second, can forecasters predict uncertain times? That is, does their own assessment of uncertainty change on par with changes in their forecasting ability? As we will see, the answer to both questions sheds light of whether forecasters are rational. And the answer to both questions is “no” for horizons longer than one year but is perhaps surprisingly “yes” for shorter-run forecasts. |
| Keywords: | professional forecasters; uncertainty; overconfidence |
| JEL: | E31 E32 E37 |
| Date: | 2024–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98756 |
| By: | Bindseil, Ulrich; Senner, Richard |
| Abstract: | Over the last decades, macro-economists have renewed their efforts to reduce the gap between monetary macroeconomics and real-world central banking. This paper reviews how macroeconomics has since 2016 approached the possible introduction of retail central bank digital currencies (CBDC). A review of the literature reveals that macroeconomic models of CBDC often rely on CBDC design features and narratives which are no longer in line with the one of central banks actually working on CBDC. In particular, the literature often (i) does not take into account the nature of central banks’ CBDC issuance plans as a “conservative” reaction to profound technological and preferential shifts in the use of money as a means of payments, (ii) does not start from design features communicated by central banks, such as no-remuneration, quantity limits, access restrictions, and automated sweeping functionality linking CBDC wallets with commercial bank accounts; (iii) does not explain well enough the difference between CBDC and banknotes within their macro-economic models, apart from remuneration (which central banks actually do not foresee); and (iv) assume that CBDC will lead to a significant increase in the total holdings of central bank money in the economy, although (i) and (ii) make this unlikely. JEL Classification: E3, E5, G1 |
| Keywords: | central bank digital currencies, central bank money, financial stability, macroeconomics |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242978 |
| By: | Anh Thi Ngoc Nguyen; Ha Nguyen |
| Abstract: | This paper investigates the impact of natural disasters on exchange rate movements in different country groups with different exchange rate regimes. Using a panel local projection model with a high-frequency monthly dataset of 177 countries during 1970M1-2019M12, we find that exchange rate movements are more sensitive to natural disasters in emerging markets and developing countries (EMDEs) than in advanced economies (AEs). Furthermore, exchange rate reactions to natural shocks depend on exchange rate regimes adopted by EMDEs. On average, both nominal and real exchange rates could depreciate up to 6 percents two years after the disasters in non-pegged regimes. Our findings suggest that EMDEs with flexible exchange rate regimes would observe a faster recovery through nominal and real depreciations, although they should be mindful about policy implications that may arise from large exchange rate fluctuations caused by natural disaster shocks. |
| Keywords: | Natural disasters; exchange rates; exchange rate regimes; flexible exchange rate regimes; fixed exchange rate regimes; structural changes |
| Date: | 2024–08–30 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/186 |
| By: | Kazuya Kamiya; So Kubota |
| Abstract: | We propose a standard search and bargaining model with divisible money, in which only the random matching market opens and the generalized Nash bargaining settles each trade. Assuming fixed production costs, we analytically characterize a tractable equilibrium, called a pay-all equilibrium, and prove its existence. Each buyer pays all the money holding as a corner solution to the bargaining problem and each seller produces a positive amount of goods as an interior solution. The bargaining power parameter affects the distribution of the money holdings and possibly induces economic inefficiency. We propose a redistributional monetary transfer that adjusts the bargaining outcome and improves the allocation efficiency. Moreover, we analyze a temporary expansion of the money supply that increases social welfare through a redistribution. |
| Date: | 2024–09–06 |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:53 |
| By: | Yadavindu Ajit (Indira Gandhi Institute of Development Research); Taniya Ghosh (Indira Gandhi Institute of Development Research) |
| Abstract: | This study investigates historical inflation persistence in India under three distinct regimes: monetary targeting, multiple indicator, and inflation targeting (IT). Previous stud- ies for India relied heavily on mean-based estimation techniques, which are biased when inflation has a skewed distribution and do not account for the tail behavior of inflation. As a result, we use a quantile-based estimation approach to test for persistence in in- flation, gaining insights into the stationary properties of various parts of the distribution rather than just the mean. Our regime-specific results point to asymmetric inflation behavior with varying persistence depending on the inflation-affecting shock. We observe high inflation persistence during the multiple indicator regime, which declines with the implementation of IT, particularly in the Pre-COVID sample. Our findings show that imple- menting IT has been beneficial in reducing inflation persistence in developing countries such as India. However, the IT regime was not very effective during COVID-19 in reducing inflation persistence. Therefore, given the intransient nature of inflation in emerging economies, central banks should exercise more caution and patience. |
| Keywords: | Inflation persistence, Monetary regime, Quantile regression |
| JEL: | C21 E31 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2024-015 |
| By: | Pirovano, Mara; Azzone, Michele |
| Abstract: | We examine the issue of the appropriate selection of macroprudential instruments according to the vulnerabilities identified and the policymakers’ objectives using a version of the 3D DSGE model following Mendicino et al. (2020) and Hinterschweiger et al. (2021) calibrated for the euro area. We consider a broad set of macroprudential instruments, including broad and sectoral countercyclical capital requirements, LTV and LTI limits and assess their transmission channels as well as their effectiveness in mitigating rising broad and sectoral vulnerabilities. We find that sectoral instruments are most effective to increase bank resilience to sectoral risks, limiting spillover effects. LTI limits are superior to LTV limits in containing the growth of mortgage credit and household indebtedness. Finally, we find that macroprudential policy is better suited than monetary policy to address emerging real estate-related imbalances. JEL Classification: E44, E58, G21, G28 |
| Keywords: | banking regulation, countercyclical capital buffer, DSGE, financial stability, macroprudential policy |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242979 |
| By: | Costas Milas (University of Liverpool); Theologos Dergiades (Department of Economics, University of Macedonia); Theodore Panagiotidis (Department of Economics, University of Macedonia); Georgios Papapanagiotou (Department of Economics, University of Macedonia) |
| Abstract: | TThe effectiveness of inflation targeting is linked to the stationarity properties of inflation. Without making apriori assumptions about the order of integration, we examine whether there is a change in the inflation persistence in one hundred and twenty-seven countries (developed and developing) using monthly data over the 1970-2021 period. For the inflation targeters, we find that the endogenously identified break dates are not consistent with the formal adoption of IT. Logit analysis reveals that inflation targeters do not experience an increased probability of a change in inflation persistence. The quality of institutions emerges as more significant for taming inflation. |
| Keywords: | persistence change; inflation targeting. |
| JEL: | C12 E4 E5 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:mcd:mcddps:2024_05 |
| By: | Christopher J. Gust; Edward P. Herbst; J. David López-Salido |
| Abstract: | Under finite horizon planning, households and firms evaluate a full set of state-contingent paths along which the economy might evolve out to a finite horizon but have limited ability to process events beyond that horizon. We show--analytically and empirically--that such a model accounts for an initial underreaction and subsequent overreaction of inflation forecasts. A planning horizon of four quarters can account for the evidence on the predictability of inflation forecast errors and macroeconomic data. Our identification and estimation strategies combine full-information methods based on aggregate data with regression-based estimates that directly use inflation expectations data. |
| Keywords: | Finite horizon planning; Inflation expectations; Bayesian estimation |
| JEL: | C11 E52 E70 |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-63 |
| By: | Kimolo, D.W; Odhiambo, N.M; Nyasha, S |
| Abstract: | This study examines the inflation dynamics in Rwanda from the 1970s to 2021, focusing on policies, trends, challenges, and opportunities in managing inflation. Secondary data sources were used for analysis. The findings show that Rwanda has adopted a multi-faceted approach to inflation control, including macroeconomic policies, economic diversification, and infrastructure investment. The study identifies three distinct episodes of high inflation in the 1970s, early 1990s, and 1994. Since the early 2000s, inflation trends have been erratic, with notable episodes in 2004, 2008-2009, 2012, and 2020. Challenges in managing inflation include import reliance, weak monetary policy transmission, and vulnerability of the agriculture sector. Opportunities for Rwanda lie in economic diversification, improved coordination between fiscal and monetary policy, and sound macroeconomic policies. The study emphasizes the need for a comprehensive approach to inflation management, considering Rwanda's unique circumstances, to achieve stability and inclusive growth through sound policies, diversification, and infrastructure investment. |
| Keywords: | Price Level; Inflation; Deflation; Rwanda |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:uza:wpaper:31542 |
| By: | Marco Del Negro |
| Abstract: | Economic surveys are very popular these days and for a good reason. They tell us how the folks being surveyed—professional forecasters, households, firm managers—feel about the economy. So, for instance, the New York Fed’s Survey of Consumer Expectations (SCE) website displays an inflation uncertainty measure that tells us households are more uncertain about inflation than they were pre-COVID, but a bit less than they were a few months ago. The Philadelphia Fed’s Survey of Professional Forecasters (SPF) tells us that forecasters believed last May that there was a lower risk of negative 2024 real GDP growth than there was last February. The question addressed in this post is: Does this information actually have any predictive content? Specifically, I will focus on the SPF and ask: When professional forecasters indicate that their uncertainty about future output or inflation is higher, does that mean that output or inflation is actually becoming more uncertain, in the sense that the SPF will have a harder time predicting these variables? |
| Keywords: | professional forecasters; uncertainty |
| JEL: | E31 E32 E37 |
| Date: | 2024–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98764 |
| By: | Sánchez Serrano, Antonio; Andersen, Isabel |
| Abstract: | We present a methodology based on quarterly sectoral accounts to build a map of the euro area financial system. The map can be used to visualise existing cross-sectoral interconnections and exposures, to analyse how the main bilateral positions have evolved over time, and to understand how past episodes of financial stress affected balance sheet structures and inter-sectoral flows. We find that the euro area financial system was essentially bank-centric when it entered the global financial crisis, and only afterwards has the importance of investment funds, government debt and central banks increased substantially. In particular, investment funds are used by euro area economic agents to gain exposure to the rest of the world and vice versa. We also document weak dynamics since the global financial crisis in lending between euro area banks and non-financial corporations. Next, we look at the financial system during the global financial crisis and the outbreak of the COVID-19 pandemic, a further four episodes of financial stress (sovereign debt crisis, the US taper tantrum, the Brexit referendum, the start of Russia’s invasion of Ukraine) and the monetary policy tightening between 2005 and 2007. While there are differences across them, we unveil interesting common features. The map can be useful in determining which sectors are resilient enough to absorb losses and whether they can serve as transmitters of stress. Finally, turning to liquidity, bank deposits, money market fund shares and securities financing transactions are key to ensure a smooth supply of liquidity and should continuously be on the radar of policymakers. JEL Classification: G01, G20, G10 |
| Keywords: | financial crisis, financial intermediation, flow of funds, Interconnections, liquidity |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkops:202426 |
| By: | Heikkinen, Joni; Heimonen, Kari |
| Abstract: | This study investigates the role of media tone on inflation expectations. Examining the relationships between news and the inflation expectations of various U.S demographic groupings, we find that traditional news influences older cohorts, while social media news align more closely with the expectations of younger and more educated groups. Interestingly, social media correspond more closely than traditional news with the expectations of professional forecasters. Our analysis shows that media influences can persist for longer than a year, highlighting the importance of historical inflation data and the gradual adaptation of new information. Additionally, we find that separate media tones for specific news topics such as "Inflation & Fed" and "Healthcare Costs" resonate differently across demographic groups. These insights highlight the nuanced role of media in shaping inflation expectations across demographic segments. |
| Keywords: | Inflation Expectations, Household Heterogeneity, Media Tone, Local Projection, Language Model, Forecasting |
| JEL: | E3 E31 E32 E52 E58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:302555 |
| By: | Linderoth, Gabriella (Uppsala Universitet); Meuller, Malte |
| Abstract: | This paper provides novel estimations of a non-linear exchange rate pass-through dependent on inflation for Sweden using a logistic smooth transition vector autoregressive model. The model enables smooth transitions between high and low inflation regimes, mirroring the dynamics of the economy and capturing regime-specific effects. The results show that the pass-through from an exchange rate depreciation shock to consumer prices depends on the level of inflation, reaching 17.4% in the high inflation regime and 6.9% in the low inflation regime. The estimations utilize data from the period 1995Q1 to 2023Q2, covering periods of both low and high inflation, as well as substantial exchange rate depreciations. The pass-through is also estimated for producer and import prices, establishing a decreasing pass-through along the pricing chain. We find limited evidence of a regime dependent pass-through to producer prices and no evidence for import prices. The findings suggest stronger monetary policy reactions following a depreciation of the exchange rate in high-inflation environments to limit the pass-through and, by extension, the impact on consumer prices. |
| Keywords: | Exchange Rate Pass-Through; Sweden; Inflation; Non-Linear; Logistic Smooth Transition Vector Autoregressive |
| JEL: | C32 E31 E52 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0439 |
| By: | Özlem Dursun-de Neef (Monash Business School - Department of Banking and Finance); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Abnormally warm temperatures are associated with an increase in people’s beliefs about climate change. Using branch-level deposit data from the United States, we find that depositors move their money away from fossil-fuel-financing banks when they experience warmer-than-usual temperatures. The reallocation of deposits is mainly due to prosocial motives rather than financial preferences. Our results shed light on people’s responses to the impacts of global warming by studying the relationship between households’ beliefs about climate change and their social preferences in their choice of bank for deposits. |
| Keywords: | Climate change, Global warming, Fossil fuel financing, Bank deposits |
| JEL: | G21 G28 Q54 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2446 |
| By: | Douglas Laxton (NOVA School of Business and Economics, Saddle Point Research, The Better Policy Project); Haykaz Igityan (Head of Model Improvement Division, Central Bank of Armenia); Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department (Chief Economist), National Bank of Georgia.) |
| Abstract: | This paper introduces the Forecasting and Policy Analysis System (FPAS) Mark II, which incorporates Mervyn King's imperative for economic models to reflect the endogenous nature of central bank credibility based on policy actions. The original FPAS, predominantly utilized by inflation-targeting central banks, has been constrained by its focus on baseline projections and local approximations. These limitations hinder its capacity to accurately reflect the evolving credibility of central banks in response to their policy choices. Credibility specifically refers to how anchored are long term inflation expectations in bond markets and by wage and price setters but also a broader consideration is whether long-term real interest rates and the exchange rate operate as shock absorbers. FPAS Mark II integrates "Monetary Policy as Risk Management" (MPRM), enhancing the framework's ability to address significant uncertainties and adapt to changing economic conditions. This new approach advocates a shift from a baseline projection to a scenario-based strategy that attempts to anticipate a diverse range of economic outcomes including non-linear such as time-varying policy credibility. By doing so, FPAS Mark II not only adheres to King's vision by embedding endogenous credibility into the fabric of monetary policy but also equips policymakers to navigate complex financial landscapes more effectively, avoiding potential pitfalls and better managing periods of uncertainty |
| Keywords: | Endogenous Credibility, FPAS, Monetary Policy as Risk Management |
| JEL: | E17 E47 E52 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:aez:wpaper:2024-04 |
| By: | Laser, Falk Hendrik; Mihailov, Alexander; Weidner, Jan |
| Abstract: | This policy brief presents a new comprehensive dataset on the currency compositions of international reserves of 64 economies from 1996 to 2023. The dataset contains country-specific shares in international reserves for the eight major international currencies, i.e. the United States Dollar (USD), the Euro (EUR), the Japanese Yen (JPY), the British Pound (GBP), the Canadian Dollar (CAD), the Australian Dollar (AUD), the Chinese Yuan or Renminbi (CNY), and the Swiss Franc (CHF). The dataset provides an up-to-date and comprehensive account of publicly available data on the denomination of international reserves, including data on international currencies other than the USD, EUR, JPY, and GBP. While the USD and the EUR remain the dominant global reserve currencies, the data indicate their significance has diminished as countries diversify their reserves. Currencies, including the CNY, have gained prominence, hinting at a gradual fragmentation of the international monetary system. While the USD should retain its leading role in the medium term, ongoing geoeconomic shifts suggest a move towards a multipolar reserve currency landscape. The eventual look of this landscape will depend on the credibility of reserve currency candidates and their ability to retain the characteristics that make them desirable as reserve currencies in the face of future economic and political developments. |
| Keywords: | International reserves, currency composition, central banks, monetary system |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitb:302554 |
| By: | Aabid Karim; Heman Das Lohano |
| Abstract: | This research examines whether sentiments conveyed in the State Bank of Pakistan's (SBP) communications impact financial market expectations and can act as a monetary policy tool. To achieve our goal, we first use sentiment analysis techniques to quantify the tone of SBP monetary policy documents and second, we use short time window, high frequency methodology to approximate the impact of tone on stock market returns. Our results show that positive (negative) change in the tone positively (negatively) impacts stock returns in Karachi Stock Exchange. Further extension shows that the communication of SBP still has a statistically significant impact on stock returns when controlling for different variables and monetary policy tool. Also, the communication of SBP does not have a long term constant effect on stock market. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.03328 |
| By: | Peter Bofinger |
| Abstract: | The paper discusses central digital currencies (CBDCs) with an analytical focus on the European Central Bank's Digital Euro (D€) project, which provides a unique lens for assessing the potential and challenges of CBDCs. The paper differs from the literature on CBDCs and the D€ by adopting a systemic perspective that distinguishes between the role of CBDCs as a new payment object and as a new payment system based on CBDC accounts. In a worst-case scenario, the D€ project could be a total flop, with people not opening accounts and the system failing to compete with existing platforms. This would be in line with the dismal experience of countries that have already introduced CBDCs. In a more positive scenario, many households would open D€ accounts alongside commercial bank accounts, potentially reducing the dominance of US platforms. However, even in this scenario, it is unlikely that there will be significant holdings of D€ deposits as a means of payment, making the D€ payment system an inefficient and costly detour between existing commercial bank accounts. The offline version remains difficult to justify. Our CBDC tracker shows that the ECB's strong commitment to the D€ is unique among central banks in advanced economies. Many of them, including the Federal Reserve, currently rule out the option of a retail CBDC. Thus, the ECB's unconditional commitment to the D€ carries a high risk of failure. It is therefore unclear why the ECB is not considering a scheme based on the existing SEPA infrastructures. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:studie:95-2024 |
| By: | Piotr Danisewicz (Tilburg University - Department of Finance); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | How does pay transparency affect the granting of credit by loan officers? We answer this question by studying the impact of the introduction of pay transparency laws across nine U.S. states with both individualand bank level data. Pay transparency laws spur bank employees, in particular loan officers, to leave for non-banks. Wages are traditionally higher there, and banks respond to these additional employee departures by increasing their own employee compensation. This catch-up in bank wages and the potential new hiring of employees then ostensibly leads to more bank risk-taking and lower bank loan performance. |
| Keywords: | Pay transparency, wage increases, financial institutions, loan performance |
| JEL: | J31 G21 G23 G01 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2441 |
| By: | Maarten R.C. van Oordt (Vrije Universiteit Amsterdam) |
| Abstract: | This paper investigates how cryptocurrencies relate to concepts such as bubbles, Ponzi-schemes and digital gold in a tractable model for cryptocurrency prices. Investors in the baseline equilibrium hold coins to sell them at a profit to future users if they anticipate in increase in transactional demand per coin. Investors in a bubble equilibrium hold the cryptocurrency because they expect its price to appreciate merely due to future investment inflows. Investors who participate in a bubble equilibrium for a cryptocurrency with non-negative money growth experience Ponzi-scheme equivalent payoffs in the aggregate. The net investment inflows required to sustain a bubble equilibrium are smaller for cryptocurrencies with less new issuance, a lower level of transactional demand and higher growth in transactional demand. Cryptocurrencies with negative issuance (e.g., that burn transaction fees) may generate positive aggregate cash flows to investors even if their price path follows a bubble trajectory. |
| Keywords: | Asset pricing, Bitcoin, crypto-asset, exchange rates, rational bubble |
| JEL: | E51 F31 G1 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20240050 |
| By: | Daniel R. Ringo |
| Abstract: | Despite the widespread use of fixed-rate mortgages in the United States, I show that monetary policy is effectively passed through to aggregate outstanding mortgage debt service. Using credit bureau, lender, and servicer data on mortgage payments and originations and exogenous monetary policy shocks, I estimate a mortgage rate semi-elasticity of payments over 10. Inframarginal borrowers---households whose choice to buy a home or refinance does not depend on the particular monetary policy decision under consideration---are the most important conduit, explaining over half of the pass-through. Consistently large flows of inframarginal borrowing relative to the stock of outstanding debt account for the strength of this channel. Households with adjustable-rate mortgages and marginal refinancers, the focus of much of the literature on monetary policy's effect on mortgage borrowers, each explain about 20 percent of the pass-through. I show the mortgage payment channel induces a lag in the operation of policy, as the cumulative effects on debt service build over time in response to persistent shocks to longer-term rates. Estimated magnitudes suggest that mortgage payments are a primary channel by which monetary policy affects consumption. |
| Keywords: | Monetary policy; Interest rates; Refinancing channel; Debt service |
| JEL: | G21 E43 E52 |
| Date: | 2024–08–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-69 |
| By: | Tibor Szendrei; Arnab Bhattacharjee |
| Abstract: | Growth-at-Risk has recently become a key measure of macroeconomic tail-risk, which has seen it be researched extensively. Surprisingly, the same cannot be said for Inflation-at-Risk where both tails, deflation and high inflation, are of key concern to policymakers, which has seen comparatively much less research. This paper will tackle this gap and provide estimates for Inflation-at-Risk. The key insight of the paper is that inflation is best characterised by a combination of two types of nonlinearities: quantile variation, and conditioning on the momentum of inflation. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.12286 |