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on Monetary Economics |
| By: | Inaki Aldasoro; Giulio Cornelli; Massimo Ferrari Minesso; Leonardo Gambacorta; Maurizio Michael Habib |
| Abstract: | Using a new series of crypto shocks, we document that money market funds' (MMF) assets under management, and traditional financial market variables more broadly, do not react to crypto shocks, whereas stablecoin market capitalization does. U.S. monetary policy shocks, in contrast, drive developments in both crypto and traditional markets. Crucially, the reaction of MMF assets and stablecoin market capitalization to monetary policy shocks is different: while prime-MMF assets rise after a monetary policy tightening, stablecoin market capitalization declines. In assessing the state of the stablecoin market, the risk-taking environment as dictated by monetary policy is much more consequential than flight-to-quality dynamics observed within stablecoins and MMFs. |
| Keywords: | stablecoins, crypto, Bitcoin, monetary policy shocks, money market funds |
| JEL: | E50 F30 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1219 |
| By: | Ana Aguilar; Rafael Guerra; Berenice Martinez |
| Abstract: | This work studies the impact of global inflation on surveyed inflation expectations of private analysts in emerging market economies (EMEs), and the role central banks can play to lessen this impact. Our study uses quarterly data for 22 EMEs from 2000–23, focusing on the mean and dispersion of forecasted inflation expectations. We find three key results. Firstly, the global inflation component can affect the mean and, to a lesser extent, the dispersion of inflation expectations. For the mean of short-term inflation expectations, this effect increased in late 2021. Secondly, while the global inflation component does matter for short-term inflation expectations, the idiosyncratic inflation component (all the inflation variation that is not explained by the global component) has a stronger influence on longer-term inflation expectations. Finally, we find that monetary policy can help reduce the transmission of global inflation to inflation expectations in both the short and long term and on the dispersion of forecasters. This underscores that EME central banks have room to shape inflation expectations, even when global factors are the main cause of inflation. |
| Keywords: | global inflation, inflation expectations, monetary policy |
| JEL: | E31 E37 E52 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1217 |
| By: | Jonathan Chiu; Cyril Monnet |
| Abstract: | This paper explores the implications of introducing digital public and private monies (e.g. tokenized central bank digital currency [CBDC] or tokenized deposits) for stablecoins and illicit crypto transactions. When they pay a high interest rate and guarantee a high degree of anonymity, these tokenized currencies crowd out stablecoins as payment methods in the crypto space. Conversely, with low anonymity and low interest rates, tokenized currencies become collateral, promoting the development of stablecoins. CBDCs dominate tokenized deposits because a central bank can better economize on scarce collateral assets and internalize the social costs of crypto activities. Prohibiting tokenized deposits may be necessary to implement the optimal CBDC design. |
| Keywords: | Digital currencies and fintech; Financial stability; Monetary policy |
| JEL: | E50 E58 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-35 |
| By: | Jing Cynthia Wu; Yinxi Xie; Ji Zhang |
| Abstract: | We assess whether unconventional monetary and fiscal policy implemented in response to the COVID-19 pandemic in the U.S. contribute to the 2021-2023 inflation surge through the lens of several different empirical methodologies—event studies, vector autoregressions, and regional panel regressions using granular data—and establish a null result. The key economic mechanism works through a disinflationary channel in the Phillips curve while monetary and fiscal stimuli put positive pressure on inflation through the usual demand channel. We illustrate this negative supply-side channel both theoretically and empirically. |
| Keywords: | Inflation and prices; Monetary policy; Fiscal policy; Business fluctuations and cycles; Central bank research |
| JEL: | E31 E52 E63 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-38 |
| By: | Marijn A. Bolhuis; Sonali Das; Bella Yao |
| Abstract: | This paper presents a new dataset of monetary policy shocks for 21 advanced economies and 8 emerging markets from 2000-2022. We use daily changes in interest rate swap rates around central bank announcements to identify unexpected shocks to the path of monetary policy. The resulting series can be used to examine cross-country heterogeneity in the impact of monetary policy shocks. We establish a new empirical fact on monetary policy spillovers across countries: the monetary policy decisions of small open economy central banks, and not just major central banks, have substantial spillover effects on swap rates and bond yields in other countries. |
| Keywords: | monetary policy surprises; monetary policy shocks; central banks; central bank information effect; emerging markets; high-frequency method; spillovers; monetary policy spillovers |
| Date: | 2024–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/224 |
| By: | Tomas Sestorad (Institute of Economic Studies of the Faculty of Social Sciences, Charles University & The Czech National Bank, Monetary Department, Prague, Czech Republic); Natalie Dvorakova (Institute of Economic Studies of the Faculty of Social Sciences, Charles University; Prague, Czech Republic) |
| Abstract: | This paper examines the drivers of the post-pandemic surge in inflation in four small open economies: Czechia, Hungary, Poland, and Slovakia. For this purpose, a Bayesian structural vector autoregressive model with sign-zero restrictions and block exogeneity is employed. The results show that both foreign demand and foreign supply shocks have contributed significantly to inflation in the post-2020 period across countries, alongside notable contributions from domestic factors explaining differences among economies. Specifically, supply-side shocks are identified as the primary domestic factor across all countries, whereas domestic demand shocks were much less influential. Exchange rate shocks were pronounced in Hungary only, while monetary policy shocks have had a minimal impact on inflation since 2022 in all the countries considered. Additionally, we provide decompositions of core inflation, highlighting the predominance of domestic factors. |
| Keywords: | Bayesian VAR, extraordinary events, inflation, sign-zero restrictions, small open economies |
| JEL: | C32 E31 E32 E52 F41 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_36 |
| By: | Michael D. Bordo (Rutgers University); William Roberds (Federal Reserve Bank of Atlanta) |
| Abstract: | We consider the debut of a new monetary instrument, central bank digital currencies (CBDCs). Drawing on examples from monetary history, we argue that a successful monetary transformation must combine microeconomic efficiency with macroeconomic credibility. A paradoxical feature of these transformations is that success in the micro dimension can encourage macro failure. Overcoming this paradox may require politically uncomfortable compromises. We propose that such compromises will be necessary for the success of CBDCs. |
| Keywords: | monetary systems, banknotes, central banks, digital currencies |
| JEL: | E42 E58 N10 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:323 |
| By: | Federico Daniel Forte |
| Abstract: | This paper examines the performance of Random Forest models in forecasting short-term monthly inflation in Argentina, based on a database of monthly indicators since 1962. It is found that these models achieve forecast accuracy that is statistically comparable to the consensus of market analysts' expectations surveyed by the Central Bank of Argentina (BCRA) and to traditional econometric models. One advantage of Random Forest models is that, as they are non-parametric, they allow for the exploration of nonlinear effects in the predictive power of certain macroeconomic variables on inflation. Among other findings, the relative importance of the exchange rate gap in forecasting inflation increases when the gap between the parallel and official exchange rates exceeds 60%. The predictive power of the exchange rate on inflation rises when the BCRA's net international reserves are negative or close to zero (specifically, below USD 2 billion). The relative importance of inflation inertia and the nominal interest rate in forecasting the following month's inflation increases when the nominal levels of inflation and/or interest rates rise. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.01175 |
| By: | Christian de Boissieu |
| Abstract: | Faced with the rise of cryptocurrencies, central banks are responding by launching their digital currencies. The purpose of this Policy Brief is to provide an update on the preparation of central bank digital currencies (CBDs) by monetary authorities, a process that concerns all emerging, developing, and more advanced countries. It is also about analyzing the conditions and some of the consequences (for banks, for financial inclusion, for the conduct of monetary policy...) of such a financial innovation, systematically distinguishing between wholesale and retail CBDCs. |
| Date: | 2023–04 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:rtrade:pb_19_23 |
| By: | Valentin Burban; Bruno De Backer; Andreea Liliana Vladu |
| Abstract: | This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, pt*, is applied to inflation-linked swap (ILS) rates, while taking into account survey-based inflation forecasts. Estimates of pt* have been close to 2% since the mid-2000s, indicating that long-term inflation expectations have overall remained well anchored to the ECB’s inflation objective. As this objective is however related to the "medium term", expectations components of various forward ILS rates are extracted: they appear to have been broadly anchored, with tentative signs of de-anchoring up to the two-year horizon. Using backcasted ILS rates, estimates of pt* are much above 2% in the early 1990s, but they converge to levels below 2% by the end of the decade when the ECB was established. |
| Keywords: | Inflation-Linked Swap Rates, Surveys, No-Arbitrage, Shifting Endpoint, Inflation Expectations |
| JEL: | G10 G32 Q54 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:965 |
| By: | Hempell, Hannah S.; Silva, Fatima; Scalone, Valerio; Cornacchia, Wanda; Di Virgilio, Domenica; Palligkinis, Spyros; Velez, Anatoli Segura; Borkó, Tamás; Espic, Aurélien; Garcia, Salomón; Heires, Marcel; Herrera, Luis; Kärkkäinen, Samu; Kent, Luke; Kerbl, Stefan; Löhe, Sebastian; Oliveira, Vitor; Steikūné, Paulina |
| Abstract: | In recent years, monetary policy and inflation considerations have been playing an increasingly important role for macroprudential authorities in their policy setting. This paper aims to assess the implications of high inflation and rising interest rates for macroprudential policy stance. The conceptual discussions and model-based analyses included in this paper reflect on the appropriate direction and impact of macroprudential policies at the different stages of financial and business cycles, given cross-country and banking system heterogeneities. In this context, a key objective of the paper is to assess to what extent the interaction between macroprudential and monetary policies differs, given the heterogeneity across euro area countries exposed to a homogenous monetary policy. While both policies are to a large extent complementary, monetary policy may generate relevant spillovers due to its impact on the financial cycle and, potentially, on financial stability. The paper argues that the recent focus of macroprudential policy on resilience, when banking sector conditions ensure no unwarranted procyclical effects of macroprudential tightening, suggests an expansion of the notion of “complementarity” with monetary policy. Specifically, with the build-up of resilience, macroprudential policy acts de facto countercyclically, supporting monetary policy in its pursuit of price stability. In this regard, the paper stresses that the source of the inflationary shock (supply versus demand side) and the monetary environment primarily affect the intensity, speed and extent of buffer build-up or release within each stage of the financial cycle while affecting borrower-based measures in their bindingness. JEL Classification: E52, G21, G28 |
| Keywords: | banks, borrower-based measures, capital buffers, financial stability, macroprudential policy, monetary policy |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2024358 |
| By: | William C. Dudley (Princeton University) |
| JEL: | E42 E58 F33 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:330 |
| By: | Romain Bouis; Mr. Gaston Gelos; Fumitaka Nakamura; Mr. Paavo A Miettinen; Erlend Nier; Gabriel Soderberg |
| Abstract: | This paper offers a comprehensive analysis of the implications for financial stability of a central bank issuing a digital currency to the public at large. We start with a systematic analysis of balance sheet changes that arise from the new liability for the central bank and the banking system, and examine how they depend on preconditions, central bank choices, and banking system responses. Based on this, we discuss the range of implications for financial stability that may arise in steady state, in the context of adoption, and in crisis times. Threats to financial intermediation in steady state arise mainly in situations where the central bank balance sheet expands, and triggers adjustment mechanisms that lead to more costly or less stable funding of the banking system, while in crisis times run risk may increase. Our analysis of policy choices to control these effects considers macroprudential policy, and an expansion of central bank lending to commercial banks, but finds that a main contribution needs to come from a design of the CBDC that encourages its use as a means of payment rather than a store of value. |
| Keywords: | Central Bank Digital Currency; Financial Stability; Balance Sheets; Disintermediation; Bank Runs |
| Date: | 2024–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/226 |
| By: | Rodolfo G. Campos (BANCO DE ESPAÑA); Jesús Fernández-Villaverde (UNIVERSITY OF PENNSYLVANIA, NBER, CEPR); Galo Nuño (BIS, BANCO DE ESPAÑA, CEPR, CEMFI); Peter Paz (BANCO DE ESPAÑA) |
| Abstract: | We study a new type of monetary-fiscal interaction in a heterogeneous-agent New Keynesian model with a fiscal block. Due to household heterogeneity, the stock of public debt affects the natural interest rate, forcing the central bank to adapt its monetary policy rule to the fiscal stance to guarantee that inflation remains at its target. There is, however, a minimum level of debt below which steady-state inflation deviates from its target due to the zero lower bound on nominal rates. We analyze the response to a debt-financed fiscal expansion and quantify the impact of different timings in the adaptation of the monetary policy rule, as well as the performance of alternative monetary policy rules that do not require an assessment of natural rates. We validate our findings with a series of empirical estimates. |
| Keywords: | HANK models, natural rates, fiscal shocks |
| JEL: | E32 E58 E63 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2439 |
| By: | Donni F. Anugrah (Bank Indonesia); Danny Hermawan (Bank Indonesia); Denny Lie (University of Sydney); Solikin M. Juhro (Bank Indonesia); Misbahol Yaqin (Bank Indonesia) |
| Abstract: | In line with the dynamics of inflation in the last 10 years in ASEAN, especially inIndonesia, this research analyzes the factors that influence inflation in Indonesiaand ASEAN. Apart from that, this research also reviews the role of supply-sidepolicies to overcome inflation trends. The panel data used is 34 provinces inIndonesia from 2010Q1 to 2022Q4 using the GMM method. Meanwhile, for theASEAN analysis, data from three countries, namely Indonesia, the Philippines and Vietnam, were included for the same time period and used the ARDL method. Theestimation results for the Indonesian case show that food price inflation is influencedby Gross Regional Domestic Product (GRDP), wages, food imports, global food pricesand National Religious Holidays (HKBN). From a policy perspective, this researchalso finds that apart from (conventional) monetary policy which influences demand (through interest rates), there is a role for food subsidies which influence the supplyside in stabilizing food prices in Indonesia. These findings are also confirmed in theempirical analysis for selected ASEAN countries. This implies that a mix of monetarypolicy and food subsidies can be used to control food prices in Indonesia. |
| Keywords: | Food Inflation, Food Subsidies, GMM |
| JEL: | E31 H20 E51 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:idn:wpaper:wp112023 |
| By: | Hänsel, Matthias |
| JEL: | E31 E52 E63 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302403 |
| By: | Juan J. Ospina-Tejeiro; José Vicente Romero |
| Abstract: | Transparency is often emphasized as a key element for central bank independence and the effectiveness of monetary policy. Between 2018 and 2019, the Central Bank of Colombia (Banco de la República) undertook a significant overhaul of its monetary decision-making process, which led to significant changes in how the bank works to design its monetary policy and communicate its outlook on the economy and its interest rate decisions to the public. This paper assesses how these changes may have impacted monetary transparency over time. To this end, we compute the Dincer-Eichengreen-Geraats (DEG) Transparency Index (Dinçer et al., 2019) and the Central Bank Transparency-Inflation Targeting (CBT-IT) Index (Al-Mashat et al., 2018) and find that the implemented changes led to an increase in monetary policy transparency, which, to a large degree, closed the gap with respect to the leading central banks with IT regimes and highest transparency ratings. RESUMEN: La transparencia es un elemento clave para la independencia de la banca central y la efectividad de la política monetaria. Entre 2018 y 2019, el Banco de la República emprendió una revisión significativa de su proceso de toma de decisiones monetarias, lo que condujo a cambios importantes en cómo se trabaja para diseñar la política monetaria y la forma en que se comunica y explica las perspectivas de la economía y las decisiones sobre las tasas de interés al público. Este documento evalúa cómo estos cambios han impactado la transparencia monetaria a lo largo del tiempo. Para ello, calculamos el Índice de Transparencia de Dincer-Eichengreen-Geraats (DEG) ( Dinçer et al., 2019) y el Índice de Transparencia para Bancos Centrales con Inflación Objetivo (CBT-IT) (Al-Mashat et al., 2018) y encontramos que los cambios implementados llevaron a un aumento en la transparencia de la política monetaria, que, en gran medida, cerró la brecha con respecto a los bancos centrales líderes con regímenes de inflación objetivo y las calificaciones más altas de transparencia. |
| Keywords: | Monetary policy, Inflation targeting, Central bank transparency, Política monetaria, inflación objetivo, transparencia de la banca central |
| JEL: | E0 E4 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1285 |
| By: | Alejandro Casado (BANCO DE ESPAÑA); David Martínez-Miera (UNIVERSIDAD CARLOS III DE MADRID AND CEPR) |
| Abstract: | We provide evidence that bank loan supply reactions to monetary policy changes are market-specific, emphasizing the importance of banks’ local specialization. We analyze the U.S. mortgage market and find that when monetary policy eases, banks increase new mortgage lending growth more in markets in which they are geographically specialized relative to other markets and banks. This holds after controlling for local lending opportunities and (unobservable) bank differences. Further empirical findings, supported by a simple model, suggest that banks face market-specific differences in lending advantages, related to market-specific information, leading them to exhibit different reactions to monetary policy changes. We document the aggregate effects of this geographical specialization channel both at the county (regional) level on mortgage supply and house price growth, as well as at the bank level on average specialization growth. Our study underscores the relevance of banks’ local specialization in shaping the transmission of monetary policy. |
| Keywords: | bank lending, federal funds rate, geographical specialization, information, monetary policy, mortgage market |
| JEL: | D82 E52 E58 G21 G23 L10 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2440 |
| By: | Alicia Aguilar (BANCO DE ESPAÑA); Ricardo Gimeno (BANCO DE ESPAÑA) |
| Abstract: | We apply discrete probability forecasts to the expectations of monetary policy rate changes, both in the United States and in the euro area. By using binomial trees from options theory, forecast distributions are derived from the instantaneous forward yield curve, based on interest rate swaps. We then use a non-randomised discrete probability forecast evaluation that confirms the presence of a systematic upward bias, consistent with the presence of a term premium. Consequently, we propose a bias-correction methodology to increase the accuracy of the density forecasts regarding monetary policy expectations. This research provides pivotal insights into understanding and improving predictive tools in monetary policy forecasting. |
| Keywords: | discrete probability forecast, monetary policy decisions, interest rate expectations, binomial tree |
| JEL: | C53 C58 G12 G17 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2438 |
| By: | Yang Liu; Ran Pan; Rui Xu |
| Abstract: | Forecasting inflation has become a major challenge for central banks since 2020, due to supply chain disruptions and economic uncertainty post-pandemic. Machine learning models can improve forecasting performance by incorporating a wider range of variables, allowing for non-linear relationships, and focusing on out-of-sample performance. In this paper, we apply machine learning (ML) models to forecast near-term core inflation in Japan post-pandemic. Japan is a challenging case, because inflation had been muted until 2022 and has now risen to a level not seen in four decades. Four machine learning models are applied to a large set of predictors alongside two benchmark models. For 2023, the two penalized regression models systematically outperform the benchmark models, with LASSO providing the most accurate forecast. Useful predictors of inflation post-2022 include household inflation expectations, inbound tourism, exchange rates, and the output gap. |
| Keywords: | Core inflation; forecasting; machine learning models; LASSO; Japan |
| Date: | 2024–09–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/206 |
| By: | Pierre Aldama; Hervé Le Bihan; Claire Le Gall |
| Abstract: | We analyse post-pandemic inflation in France using the Bernanke and Blanchard (2023) semi-structural model of wage and price inflation. This model builds on a wage Phillips curve, a mark-up price-setting equation and adaptive equations for short- and long-run inflation expectations. Wage and price inflation as well as inflation expectations are modelled as functions of a labour market slack indicator (the vacancies-to-unemployed ratio), energy and food price shocks, a measure of supply-chain disruptions (“shortages”) and other exogenous factors (trend productivity, Covid lockdowns/re-openings). We estimate the model from the 1990s to 2023Q2 and derive impulse response functions and historical decomposition of endogenous variables during the pandemic-era. As Bernanke and Blanchard (2023) for the US, we find that the main driver of the post-pandemic inflation was the energy price shocks at first, followed by the food price shocks. Labour market conditions initially played a minor role in inflation, although the substantial increase in wage inflation observed between 2021Q4 and 2023Q2 can be attributed predominantly to the tightening of the labour market. Finally, we perform conditional simulations of wage and price inflation based on alternative scenarios for labour market tightness. |
| Keywords: | Prices, Inflation, Wages, Inflation Expectations, Phillips Curve |
| JEL: | E31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:967 |
| By: | Andres Blanco; Corina Boar; Callum J. Jones; Virgiliu Midrigan |
| Abstract: | We develop a tractable sticky price model in which the fraction of price changesevolves endogenously over time and, consistent with the evidence, increases with inflation. Because we assume that firms sell multiple products and choose how many, but not which, prices to adjust in any given period, our model admits exact aggregation and reduces to a one-equation extension of the Calvo model. This additional equation determines the fraction of price changes. The model features a powerful inflation accelerator – a feedback loop between inflation and the fraction of price changes – which significantly increases the slope of the Phillips curve during periods of high inflation. Applied to the U.S. time series, our model predicts that the slope of the Phillips curve ranges from 0.02 in the 1990s to 0.12 in the 1970s and 1980s. |
| Keywords: | Phillips curve; Inflation; Price rigidities |
| JEL: | E30 E50 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-78 |
| By: | Georgarakos, Dimitris (European Central Bank); Gorodnichenko, Yuriy (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin); Kenny, Geoff (European Central Bank) |
| Abstract: | We implement a survey-based randomized information treatment that generates independent variation in the inflation expectations and the uncertainty about future inflation of European households. This variation allows us to assess how both first and second moments of inflation expectations separately affect subsequent household decisions. We document several key findings. First, higher inflation uncertainty leads households to reduce their subsequent durable goods purchases for several months, while a higher expected level of inflation increases them. Second, an increase in uncertainty about inflation induces households to tilt their portfolios towards safe and away from riskier asset holdings. Third, higher inflation uncertainty encourages household job search, leading to higher subsequent employment among the unemployed and less under-employment among the employed. Finally, we document that the level of inflation expectations has a different effect from uncertainty in inflation expectations and thus it is crucial to take into account both to measure their separate effects on decisions. |
| Keywords: | inflation uncertainty, consumption, household finance, labor supply, consumer expectations survey |
| JEL: | E31 C83 D84 G51 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17317 |
| By: | Ahmed Hefnaoui (Faculté des Sciences Juridiques Economiques et Sociales Mohammedia, Université Hassan II de Casablanca); Ibnouzahir Youssef (Faculté des Sciences Juridiques Economiques et Sociales Mohammedia, Université Hassan II de Casablanca) |
| Abstract: | This study assesses the effectiveness of Morocco's monetary policy following the adoption of inflation targeting in 2006. The objective is to evaluate whether this strategy has stabilized inflation and supported economic growth. The methodology is based on a VAR model using quarterly data from 2007 to 2023, with Granger causality tests and impulse response functions to capture the simultaneous effects between monetary variables. The results indicate that inflation in Morocco is driven by shocks to the exchange rate and money supply, while the effect of the policy rate remains limited. Although monetary interventions have short-term effectiveness, their moderate impact suggests the need for structural reforms to enhance inflation targeting efficiency. |
| Abstract: | Cette étude examine l'efficacité de la politique monétaire au Maroc après l'adoption du ciblage d'inflation en 2006. L'objectif est d'évaluer si cette stratégie a permis de stabiliser l'inflation et de soutenir la croissance économique. La méthodologie adoptée repose sur un modèle VAR avec des données trimestrielles de 2007 à 2023, incluant des tests de causalité de Granger et des fonctions de réponses impulsionnelles pour mesurer l'effet simultané entre les variables monétaires. Les résultats montrent que l'inflation au Maroc est influencée par les chocs sur le taux de change et la masse monétaire, mais que l'impact du taux directeur reste limité. Les interventions monétaires, bien qu'efficaces à court terme, ont un effet modéré, ce qui suggère la nécessité de réformes structurelles pour renforcer l'efficacité du ciblage d'inflation. |
| Keywords: | Inflation, Inflation targeting, Monetary policy, VAR model, Policy rate, Ciblage d'inflation, Politique monétaire, Modèle VAR, Taux directeur |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04737587 |
| By: | Bao We Wal Bambe (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne); Jean-Louis Combes (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne); Kabinet Kaba (CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Alexandru Minea (UCA - Université Clermont Auvergne, LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, Carleton University) |
| Abstract: | We examine the impact of inflation targeting on manufacturing firm performance in developing countries. Using a panel of 31, 027 firms in 47 countries from 2006 to 2020 and applying the entropy balancing method to mitigate selection issues, we find that inflation targeting significantly increases firm growth and productivity. The findings are economically significant and robust to various checks. Moreover, we provide evidence that our results are not biased towards unobservables nor are they confounded with the effects induced by other reforms, such as IMF programs. We further show that economic and institutional factors such as the quality of judicial processes, fiscal discipline, central bank deviations from the target, and the time length since the policy adoption also influence the link between the monetary regime and firm performance. Last, we explore the main transmission channels and identify macroeconomic stability as the key driver of the regime's effectiveness. |
| Keywords: | Inflation targeting, Manufacturing firm performance, Developing countries, Entropy balancing |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04734823 |
| By: | Felipe Alves; Giovanni L. Violante |
| Abstract: | We develop a Heterogeneous Agent New Keynesian model with a three-state frictional labour market that is consistent with the empirical evidence that (i) low-skilled workers are more exposed to the business cycle, (ii) displacement leads to long-lasting earnings losses, and (iii) unemployment is a stepping stone toward exit from the labor force. In this environment, a transient contractionary monetary policy shock induces a very persistent reduction in labour force participation and labour productivity, especially among workers at the bottom of the skill distribution. Despite the negative hysteresis on output, the model does not give rise to protracted deflation. |
| Keywords: | Monetary Policy Transmission; Labour Markets |
| JEL: | E21 E24 E31 E32 E52 J24 J64 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-39 |
| By: | Bitter, Lea; Brand, Claus; Fonseca, Luís; Akkaya, Yıldız |
| Abstract: | We construct monetary policy indicators from high-frequency asset price changes following policy announcements, emphasising the concentration of asset price responses along specific dimensions and their leptokurtic distribution. Traditionally, these dimensions are identified by rotating principal components based on economic assumptions that overlook information in excess kurtosis. We employ Varimax rotation, leveraging excess kurtosis without using economic restrictions. Within a set of euro-area risk-free assets Varimax validates policy news along dimensions previously derived from structural identification approaches and rejects evidence of macroinformation shocks. Yet, once adding risky assets Varimax identifies only one risk-free factor in medium- to long-term yields and instead points to additional risk-shift factors. JEL Classification: E43, E52, E58, C46, G14 |
| Keywords: | event study, fat tails, high-frequency identification, monetary policy instruments, Varimax |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242994 |
| By: | Antonio Diez de los Rios |
| Abstract: | I propose a novel dynamic portfolio-balance model of the yield curve for Government of Canada bonds to evaluate the portfolio-balance effects of the Bank of Canada’s Government of Canada Bond Purchase Program. My results suggest that this program, launched on March 27, 2020, in response to the COVID-19 pandemic, lowered the weighted average maturity of the Government of Canada’s debt by approximately 1.4 years. This in turn reduced Canadian 10-year and 5-year zero-coupon yields by 84 and 52 basis points, respectively |
| Keywords: | Asset pricing; Central bank research; Coronavirus disease (COVID-19); Interest rates; Monetary policy |
| JEL: | E43 E52 G12 H63 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-34 |
| By: | Monia Magnani |
| Abstract: | We study whether and how monetary policymakers may have contributed to inflate asset price bubbles and in general what are the potentially complex, non-linear linkages between short-term policy rates and the size and expected durations of equity bubbles. In particular, we extend empirical models of periodically collapsing, rational bubbles to test whether and to what extent the long cycle of rates at the zero lower bound and of quantitative easing policies may have increased the probability of bubbles inflating and persisting, with special emphasis on the US stock market. We find that the linkages between S&P returns and rate-based indicators of monetary policies contain evidence of recurring regimes that can be characterised as one of a persisting vs. one of a collapsing bubble. Moreover, the probabilities of financial markets transitioning from a bubble to a state of (partial) collapse turns out to depend on both the initial, relative size of the bubble and on monetary policy indicators. This implies that an easier (tighter) monetary policy will inflate (deflate) a bubble through a simple, regression-style effect, but also yield a non-linear, “concave” effect by which sufficiently low (high) rates are enough for a bubble to inflate (deflate) with high probability. Besides fitting the data, the resulting, parsimonious, regime switching models provide an accurate and economically valuable predictive performance, even when transaction costs are taken into account. |
| Keywords: | Rational bubbles, monetary policy, stock returns, regime switching, forecasting. |
| JEL: | G12 E52 C58 G17 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp24231 |
| By: | Sophia Chen; Ms. Deniz O Igan; Do Lee; Ms. Prachi Mishra |
| Abstract: | U.S. inflation surged in 2021-22 and has since declined, driven largely by a sharp drop in goods inflation, though services inflation remains elevated. This paper zooms into services inflation, using proprietary microdata on wages to examine its relationship with service sector wage growth at the Metropolitan Statistical Area (MSA) level. We estimate the wage-price pass-through with a local projection instrumental variable model that exploits variation in labor market tightness across MSAs. Our findings reveal a positive and significant relationship between wages and price growth, with a lag. This suggests that the effects of tight labor markets are persistent and may influence the pace of progression toward the inflation target. |
| Keywords: | Inflation; Wages; Labor Market Conditions |
| Date: | 2024–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/220 |
| By: | Itamar Caspi; Nadav Eshel; Nimrod Segev |
| Abstract: | This study investigates the impact of increased debt servicing costs on household consumption resulting from monetary policy tightening. It utilizes observational panel microdata on all mortgage holders in Israel and leverages quasi-exogenous variation in exposure to adjustable-rate mortgages (ARMs) due to a regulatory shift. Our analysis indicates that when monetary policy became more restrictive, consumers with a higher ratio of ARMs experienced a more marked reduction in their consumption patterns. This effect is predominantly observed in mid- to lower-income households and those with a higher ratio of mortgage payments to total spending. These findings highlight the substantial role of the mortgage cash-flow channel in monetary policy transmission, emphasizing its implications for economic stability and inequality. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.02445 |
| By: | William Barnett (Department of Economics, University of Kansas, Lawrence, KS 66045, USA and Center for Financial Stability, New York City); JoonSoo Lee (Department of Economics, University of Kansas, Lawrence, KS 66045, USA Author-Name: Naowar Mohiuddin; Department of Economics, University of Kansas, Lawrence, KS 66045, USA) |
| Abstract: | This study constructs Divisia monetary aggregates for the “Asian Tigers†—Hong Kong (1999–2024), South Korea (2009–2024), Singapore (1991–2021), and Taiwan (2005–2024)—and assesses whether Divisia monetary aggregates explain nominal GDP better than simple-sum money. Our findings demonstrate that Divisia indices respond more sensitively to economic shocks. For Hong Kong and Taiwan, narrow Divisia money provides the best explanations for fluctuations in nominal GDP. Our results suggest that Divisia monetary aggregates can be beneficial for monetary policy analysis in these countries and underscore the importance of further research into the empirical performance of Divisia monetary aggregates in macroeconomic prediction. |
| Keywords: | divisia index; divisia monetary aggregates; vector error-correction model |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:kan:wpaper:202413 |
| By: | Peter Tóth (Faculty of Economics and Business, University of Economics in Bratislava); Samuel Holinga (Faculty of Economics and Business, University of Economics in Bratislava); Richard Kali? (Faculty of Economics and Business, University of Economics in Bratislava) |
| Abstract: | This paper examines the empirical distribution of individual inflation rates derived from household-specific consumption baskets and investigates the relationship between these rates and the socio-economic characteristics of Slovak households. Utilizing household budget survey data and a detailed breakdown of HICP inflation indices from the peak of the recent inflationary shock in January 2022, we calculated household-specific consumption basket weights and individual inflation rates. Due to diverse consumption patterns within the sample, our findings indicate that multi-person households with children and retired households experience the highest levels of inflation. In contrast, wealthier households are significantly less exposed to inflation, owing to a smaller portion of their budget allocated to food and energy. The empirical distribution revealed a range of individual inflation rates, with variations of up to 7.8 percentage points below and 7 percentage points above the official HICP inflation rate. These findings are relevant for designing targeted social policies aimed at reducing poverty and income inequality. |
| Keywords: | Inflation, Household expenditures, Consumption baskets, Slovakia |
| JEL: | E31 D12 R20 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14516466 |
| By: | Simionescu, Mihaela; Schneider, Nicolas; Gavurova, Beata |
| Abstract: | Transmission channels from monetary shocks might be identified by studying the features of the production network. The main aim of this paper is to provide insights about the role of production network into the propagation of monetary policy shocks in G7 economies. Time-varying Bayesian vector-autoregressions were built to compute impulse response functions of output to monetary policy shocks in these countries. Panel Auto-Regressive Distributed Lag Bound Approach based on Mean-Group estimator was used to assess the long and short-run connections between production network structure and various shocks associated to monetary policy in the period 2000–2018 and during the Great Recession (2007–2009). The results show that upstreamness is more significant than downstremness in the period 2000–2018, while the financial sector significantly contributed to the spread of various monetary shocks during the Great Recession. |
| Keywords: | Bayesian VAR model; monetary policy shocks; panel ARDL model; production network |
| JEL: | C51 C53 |
| Date: | 2024–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:125580 |
| By: | Drydakis, Nick |
| Abstract: | This study utilised longitudinal data from Black History Month events in London from 2021 to 2023. Novel findings revealed that increased inflation and Bank Rates, related to the cost-of-living crisis, were associated with greater discrimination and deteriorations in both general and mental health for Black individuals. Moreover, it was found that during the cost-of-living crisis period, i.e., 2022-2023, discrimination was more adversely related to general and mental health deterioration compared to the period before the cost-of-living crisis, i.e., 2021. In addition, women, non-native individuals, non-heterosexual individuals, the unemployed, economically inactive individuals, those with lower educational attainment, and older individuals experienced higher levels of discrimination and reduced general and mental health compared to reference groups. The findings of the study contribute to the literature by demonstrating the intertwined associations of macroeconomic deteriorations and discrimination with the health of the Black community, and its subgroup differences, providing a basis for targeted policies. |
| Keywords: | Black Community, Health, Mental Health, Discrimination, Cost-of-Living Crisis, Inflation Rate, Bank Rate |
| JEL: | E31 E32 E43 I14 J71 J15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1500 |
| By: | Theophilus G. Baidoo; Ashley Obeng |
| Abstract: | Inflation remains a persistent challenge for many African countries. This research investigates the critical role of machine learning (ML) in understanding and managing inflation in Ghana, emphasizing its significance for the country's economic stability and growth. Utilizing a comprehensive dataset spanning from 2010 to 2022, the study aims to employ advanced ML models, particularly those adept in time series forecasting, to predict future inflation trends. The methodology is designed to provide accurate and reliable inflation forecasts, offering valuable insights for policymakers and advocating for a shift towards data-driven approaches in economic decision-making. This study aims to significantly advance the academic field of economic analysis by applying machine learning (ML) and offering practical guidance for integrating advanced technological tools into economic governance, ultimately demonstrating ML's potential to enhance Ghana's economic resilience and support sustainable development through effective inflation management. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.05630 |
| By: | Aya Nasreddine; Yasmine Essafi Zouari |
| Abstract: | Using the wavelet quantile correlation (WQC) methodology, we measure the suitability of gold, silver, oil, stocks as well as the French and the G7 countries indirect real estate to hedge against global and energy inflation. The WQC allows us to deal with time-varying characteristics of time series and to capture tail dependence. Besides, it has the advantage of dissolving the correlation structure between asset returns and inflation across different timescales, enabling us to consider different investment horizons. Recorded results over the 2000-2023 period show that the response to inflationary pressures varies according to the asset class, the holding period as well as the type of inflation considered. Whereas precious metals seem to be suitable over short term maturities, French listed real estate displays interesting inflation hedging features as the investment horizon lengthens. Oil emerges as an equivocal hedge against both global and energy inflation. |
| Keywords: | Indirect real estate; Inflation Hedging; Investment horizon; Wavelet quantile correlation |
| JEL: | R3 |
| Date: | 2024–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:arz:wpaper:eres2024-092 |
| By: | Steiber, Nadia (University of Vienna and Institute for Advanced Studies Vienna, Austria); Lebedinski, Lara (University of Vienna); Liedl, Bernd (University of Vienna); Winter-Ebmer, Rudolf (Johannes Kepler University, Linz and Institute for Advanced Studies Vienna, Austria) |
| Abstract: | This study contributes to the literature on how parenthood affects the within-couple gender earnings gap. It examines how this 'child penalty' on women's earnings varies with the education level of both partners and the woman’s relative education within the couple. Using Austrian register data on 268, 156 heterosexual couples who entered parenthood between 1990 and 2007, and an event study design that uses the couple as the unit of analysis, we examine the heterogeneity in the magnitude of the child penalty. Our stratified analyses show that the average child penalty is smaller for women in hypogamous couples, where she is more educated than her partner, than for women in homogamous or hypergamous unions, where the male partner is equally or more educated. These results are confirmed by multivariate regressions that control for compositional effects and disentangle the effects of partners' level of education from the impact of the woman's relative education within the couple. Furthermore, examining detailed educational pairings, rather than lumping couples into three broad types, reveals a larger variation in the size of the child penalty: tertiary-educated women in hypogamous unions incur substantially smaller penalties compared to all other educational pairings, while women in hypergamous unions with a tertiary-educated man face particularly large penalties. Supplementary analyses suggest that the reduced child penalties for tertiary-educated women in hypogamous unions do not reflect a selection of men with low earning potential into this union type. |
| Keywords: | Child penalty, hypogamy, gender earnings gap |
| JEL: | J12 J13 J16 J22 D10 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ihs:ihswps:number57 |