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on Monetary Economics |
| By: | Michael J. Lamla; Damjan Pfajfar; Lea Rendell |
| Abstract: | We explore the consequences of losing confidence in the price stability objective of central banks by studying the resulting inflation and deflationary biases in medium-run inflation expectations. In a model with heterogeneous household perceptions of an occasionally binding zero-lower-bound constraint and of monetary policy objectives, we show that the estimated model-implied distribution of households' inflation expectations matches several characteristics of the empirical distribution when featuring both inflation and deflationary biases. We then directly identify these biases using unique individual-level survey data on medium-run inflation expectations across nine countries and over time. Both inflation and deflationary biases are important features of the distribution of medium-run inflation expectations. |
| Keywords: | inflation bias; deflationary bias; confidence in central banks; effective lower bound; inflation expectations; microdata |
| JEL: | E31 E37 E58 D84 |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:99150 |
| By: | Kerstin Bernoth; Helmut Herwartz; Lasse Trienens |
| Abstract: | Using a data-driven approach to identify structural vector autoregressive models, we examine key factors influencing the US dollar exchange rate across eight advanced economies from 1980 to 2022. We find that shocks to inflation expectations, which are closely tied to unfunded government transfer payments, have a pronounced effect on the US dollar’s value. This underscores the fiscal dimension of exchange rates. External shocks, related to the convenience yield investors forgo to hold US dollar assets, have emerged over time as the most powerful driver of US dollar exchange rate fluctuations. These findings provide new insights into the complex interplay of monetary policy, fiscal dynamics, and global market forces in shaping US dollar exchange rates. |
| Keywords: | Exchange rates, convenience yield, inflation expectations, monetary policy, fiscal policy, unfunded government transfer payment, monetary-fiscal policy mix |
| JEL: | E52 C32 E43 F31 G15 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2100 |
| By: | Karau, Sören |
| Abstract: | I show that the majority of short-term nominal exchange rate fluctuations among large economies can be explained by changes in the relative stance of their monetary policies. Adapting recently developed instrumental variable techniques for shock identification, I find that monetary policy shocks of the US relative to the euro area account for 76 percent of the short-term fluctuations of the USD-EUR exchange rate over a one-month horizon - substantially more than previously documented. Similar results are obtained for exchange rates involving the British pound and Japanese yen. Relative monetary policy shocks explain a larger fraction of variability of the exchange rate than of interest rate differentials throughout the yield curve, and small changes in risk-free rates are associated with sizable jumps in the exchange rate. Identifying US and euro area shocks separately reveals that both are important for the USD-EUR rate. Taken together, these findings speak to the significance of (not only US) monetary policy in driving frictions in interest parity relations that have recently been found to be crucial for understanding exchange rate behavior from a theoretical perspective. |
| Keywords: | Monetary Policy, Exchange Rates, Proxy VAR |
| JEL: | E44 E52 F31 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:305278 |
| By: | Isabel Gödl-Hanisch; Ron Mau; Jonathan Rawls |
| Abstract: | We study monetary policy in a New Keynesian model with a variable credit spread and scope for central bank asset purchases to matter. A novel financial and labor market interaction generates an endogenous cost-push channel in the Phillips curve and a credit wedge in the IS curve. These channels arise due to a liquidity premium to long-term debt present in our model. The “divine coincidence” holds with the nominal short rate and central bank balance sheet available as policy tools—dual-instrument policy. Targeting the liquidity premium using balance sheet policy provides a determinate equilibrium with a fixed policy rate, as does inflation-targeting balance sheet policy. While the liquidity premium in our model depends on unobservable components, the slope of the yield curve serves as a proxy for the liquidity premium when thinking about implementable monetary policy strategies that respond to observable variables alone. We quantify the welfare costs to various monetary policy strategies relative to the analytically derived optimal dual-instrument policy. |
| Keywords: | unconventional monetary policy; optimal monetary policy; New Keynesian model; policy rate; Interest rate |
| JEL: | E43 E52 E58 |
| Date: | 2024–11–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99106 |
| By: | Janet Hua Jiang; Rupal Kamdar; Kelin Lu; Daniela Puzzello |
| Abstract: | We disentangle the channels through which inflation expectations affect household spending. We conduct a survey featuring hypothetical scenarios that generate a controlled increase in inflation expectations. For 74% of households, current spending is unresponsive, typically due to fixed budget plans or irrelevance of inflation expectations. About 20% of households reduce spending, often citing wealth effects, nominal income rigidity, and inflation hedging. Only 6% increase spending, mostly due to intertemporal substitution or stockpiling. Respondents who expect other economic variables to deteriorate are more likely to reduce spending. Our findings suggest manipulating inflation expectations to boost consumer spending may not be an effective policy tool. |
| Keywords: | Central bank research; Inflation and prices; Inflation targets; Monetary policy; Monetary policy transmission |
| JEL: | D15 D84 E2 E52 E7 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-44 |
| By: | Swapan-Kumar Pradhan; Elod Takats; Judit Temesvary |
| Abstract: | We use a rarely accessed BIS database on bilateral cross-border bank claims by bank nationality to examine the interaction of monetary and fiscal policies. We find significant interactions: the transmission of the monetary policies of major currency issuers is significantly influenced by the fiscal stance of source (home) lending banking systems. Fiscal consolidation in a source country amplifies the effect of currency issuers' monetary policy on lending. For instance, a reduction in the German debt-to-GDP ratio amplifies the negative impact of US monetary policy tightening on USD-denominated cross-border bank lending. |
| Keywords: | monetary policy, government debt, cross-border claims, difference-in-differences |
| JEL: | E63 F34 F42 G21 G38 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1226 |
| By: | Jongrim Ha; Dohan Kim; M. Ayhan Kose; Eswar S. Prasad |
| Abstract: | Conventional empirical models of monetary policy transmission in emerging market economies produce puzzling results: monetary tightening often leads to an increase in prices (the price puzzle) and depreciation of the currency (the FX puzzle). We show that incorporating forward-looking expectations into standard open economy structural VAR models resolves these puzzles. Specifically, we augment the models with novel survey-based measures of expectations based on consumer, business, and professional forecasts. We find that the rise in prices following monetary tightening is related to currency depreciation, so eliminating the FX puzzle helps solve the price puzzle. |
| Keywords: | monetary policy, emerging market economies, prize puzzle, foreign exchange puzzle |
| JEL: | E31 E32 Q43 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-67 |
| By: | Samuel Mann; Alexis Meyer-Cirkel |
| Abstract: | In early 2021, as monetary policy tightening reversed a multi-year trend of Metical depreciation, the exchange rate vis-à-vis the US dollar de facto stabilized. This report discusses elements of the market structure and other drivers of Metical stability since mid-2021. The particularities of Mozambique, a small open economy with an export sector that has a strong foreign currency cost structure, provide important insights into that discussion, as does the structure and development of the Foreign Exchange (FX) market. |
| Keywords: | Mozambique; Foreign Exchange Stability; Exchange Rate Regimes; Central Bank Policy; FX Market Structure; Market Intervention |
| Date: | 2024–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/233 |
| By: | Otaviano Canuto |
| Abstract: | The US dollar has risen dramatically in value against other currencies recently. Three channels through which factors affecting bilateral exchange rates operate have been pulling up the U.S. dollar: yield differentials, liquidity differentials, and growth differentials. The strong appreciation of the US dollar against other currencies recently reinforced the contractionary pressures present in the global economy. Ultimately, the “turn” or “pivot” of the dollar will most likely occur when a “turn” or “pivot” occurs in US monetary policy, given the latter’s critical weight on the determination of growth and yield differentials. |
| Date: | 2022–11 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:rpaeco:pb_67-22 |
| By: | Yang, Dianyi |
| Abstract: | Since 2022, central bank losses have been prevalent in advanced economies due to previous quantitative easing and recent inflationary pressures. This paper focuses on the unique case of the United Kingdom, where the government promised in advance to cover any central bank losses arising from quantitative easing. This promise is known as the indemnity. A game-theoretical model is proposed to explain the causes and effects of such indemnity. The model's predictions about the indemnity's effect on central bank profitability are empirically examined. Using the novel Dynamic Multilevel Latent Factor Model (DM-LFM), the indemnity is found to have significantly boosted the Bank of England's profits in the deflationary environment after 2008, but exacerbated its losses under the recent inflationary pressure since 2022. The theoretical model suggests the pronounced effects are due to the Bank of England's high sensitivity to losses and the UK government's moderate fiscal liberalism. Therefore, the British experience should not be generalised. Nevertheless, the theoretical and empirical lessons can inform policy-makers about future institutional designs concerning the fiscal-monetary interactions and the public finance-price stability trade-off. |
| Date: | 2024–08–20 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:wz75m |
| By: | Tatsuya Ozaki (Bank of Japan); Tomoyuki Yagi (Bank of Japan); Akihito Yoshii (Bank of Japan) |
| Abstract: | In the consumer prices for services, labor costs account for a high share of output prices. With the strengthening linkage between wages and prices, services prices are an important factor for increases in underlying CPI inflation. Services prices in Japan remained at around 0 percent on a year-on-year basis and extremely sticky. Through an analysis of firms' recent behavior, it is clear that their price-setting behavior has begun to change, as shown by a rapid increase in the rate of wage increases in the annual spring labor-management wage negotiations for two consecutive years and the "beginning-of-the-period price hikes" seen in many services items in spring 2024. Going forward, it is important to continue to examine from a broad perspective whether these changes in firms' price-setting behavior will spread further and whether underlying inflation will rise steadily. |
| Keywords: | Consumer prices; Wage; Pass-Through; Cost structure; Lasso; Probit; Time-varying parameter VAR |
| JEL: | C23 C32 E30 E31 |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojrev:rev24e10 |
| By: | Buchak, Greg (Stanford U); Matvos, Gregor (Northwestern U); Piskorski, Tomasz (Columbia U); Seru, Amit (Stanford U) |
| Abstract: | The traditional model of bank-led financial intermediation, where banks issue demandable deposits to savers and make informationally sensitive loans to borrowers, has seen a dramatic decline since 1970s. Instead, private credit is increasingly intermediated through arms-length transactions, such as securitization. This paper documents these trends, explores their causes, and discusses their implications for the financial system and regulation. We document that the balance sheet share of overall private lending has declined from 60% in 1970 to 35% in 2023, while the deposit share of savings has declined from 22% to 13%. Additionally, the share of loans as a percentage of bank assets has fallen from 70%to 55%. We develop a structural model to explore whether technological improvements in securitization, shifts in saver preferences away from deposits, and changes in implicit subsidies and costs of bank activities can explain these shifts. Declines in securitization cost account for changes in aggregate lending quantities. Savers, rather than borrowers, are the main drivers of bank balance sheet size. Implicit banks’ costs and subsidies explain shifting bank balance sheet composition. Together, these forces explain the fall in the overall share of informationally sensitive bank lending in credit intermediation. We conclude by examining how these shifts impact the financial sector’s sensitivity to macroprudential regulation. While raising capital requirements or liquidity requirements decreases lending in both early (1960s) and recent (2020s) scenarios, the effect is less pronounced in the later period due to the reduced role of bank balance sheets in credit intermediation. The substitution of bank balance sheet loans with debt securities in response to these policies explains why we observe only a fairly modest decline in aggregate lending despite a large contraction of bank balance sheet lending. Overall, we find that the intermediation sector has undergone significant transformation, with implications for macroprudential policy and financial regulation. |
| JEL: | E50 G20 G21 G22 G23 G24 G28 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:4181 |
| By: | Thomadakis, Apostolos; Lannoo, Karel; Shamsfakhr, Farzaneh |
| Abstract: | A new study highlights that to ensure widespread adoption, the digital euro must offer a compelling value proposition and clear benefits to consumers and merchants in the EU, while the EU’s legislative framework should allow for these benefits to gradually emerge over time. There is a need to minimise the risk of crowding out European private solutions, which would impact competition and the attractiveness of the European payments market, while at the same time hinder the digital euro’s adoption. Formed in April 2023, a CEPS-ECMI-ECRI Round Table brought together a working group of market operators and infrastructure providers, central bank representatives, regulators, and academics to take part in research and in-depth discussions over a six-month period. Prior to deciding whether to proceed with the digital euro project, the study argues that: The benefits of an eventual digital euro and its added value for end users (i.e. individuals, merchants and businesses), compared with existing payment solutions, should be crystal clear, well understood and clearly communicated. The digital euro should be cost efficient, economically viable and contribute to making payments – and ultimately the European economy – more competitive. The effectiveness of holding limits should be better justified and explained. If a decision is made to proceed with the digital euro project, our study proposes approaching it as follows: Start with a digital euro that is as simple as possible and includes only the most basic functionalities. Rely on and build upon existing mechanisms in the payment infrastructure as much as possible and take full advantage of current service processes. Establish a regulatory framework that ensures a level playing field for the payment ecosystem, between providers and between currencies (public and private money). Finally, so as not to impact the euro’s attractiveness as a means of payment relative to other major currencies, decisions on the digital euro (either a retail or wholesale one) cannot be taken in isolation from central bank digital currency developments in other major jurisdictions. |
| Date: | 2023–10 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:41185 |
| By: | Knut Are Aastveit; Hilde C. Bjørnland; Jamie L. Cross; Helene Olsen |
| Abstract: | This paper demonstrates that inflation expectations have acted as significant amplifiers of recent global demand and supply shocks, thereby playing a crucial role in maintaining inflation at relatively high levels. This finding is established by applying a structural vector autoregression model that includes various shocks to global demand and supply, along with domestic inflation and inflation expectations for six economies: the United States, Canada, New Zealand, the Euro area, the United Kingdom, and Norway. We begin by documenting that global demand and supply shocks in the oil market, as well as global supply chain disruptions, have been major drivers of the recent inflation surge in all these economies. Subsequently, through various counterfactual and conditional forecasting exercises, we demonstrate that inflation expectations generally amplify the transmission of global shocks to inflation and have played a critical role in sustaining elevated inflation rates in recent years, particularly in the United States, Canada, and New Zealand. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0132 |
| By: | Jelena Momcilovic and Mirjana Miletic; Jelena Momcilovic (National Bank of Serbia); Mirjana Miletic (National Bank of Serbia) |
| Abstract: | In this paper we showed how labour market factors are included in the macroeconomic model which the National Bank of Serbia uses for the medium-term inflation projection, thus enabling an insight into labour market trends, as well as an analysis of the link with other macroeconomic indicators, notably their effect on inflation. The estimates obtained by applying the Kalman filter indicate that NAIRU is still below the unemployment rate, suggesting a positive unemployment gap and showing that the labour market in Serbia is not exerting any major pressures on inflation. The paper also presents the results of testing the relevance of the hysteresis effect in the unemployment rate for Serbia. The hysteresis effect was confirmed by applying the unit root test and estimating the statistical significance of the stochastic trend in the NAIRU series. |
| Keywords: | labour market, inflation, NAIRU, monetary policy |
| JEL: | F30 G15 G20 G30 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nsb:bilten:25 |
| By: | Jamie L. Cross; Aubrey Poon; Wenying Yao; Dan Zhu |
| Abstract: | The Dynamic Nelson-Siegel (DNS) model implies that the instantaneous bond yield is a linear combination of yield curve’s level and slope factors. However, this constraint is not used in practice because it induces a singularity in the state covariance matrix. We show that this problem can be resolved using Bayesian methods. The key idea is to view the state equation as a prior distribution over missing data to obtain a hyperplane truncated multivariate normal conditional posterior distribution for the latent factors. This distribution can then be reparameterized as a conditional multivariate normal distribution given the constraint. Samples from this distribution can be obtained in a direct and computationally efficient manner, thus bypassing the Kalman filter recursions. The empirical significance of the resulting Yield-Macro Constrained DNS (YM-CDNS) model is demonstrated through both a reduced form analysis of the US Treasury yield curve, and a structural analysis of functional conventional and unconventional monetary policy shocks on the yield curve and the broader macroeconomy. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bny:wpaper:0133 |
| By: | Olivier Armantier; Marco Cipriani; Asani Sarkar |
| Abstract: | We study Discount Window (DW) stigma, the reluctance to access the Federal Reserve’s lender-of-last resort facility, between 2014 and 2024. Despite increased usage since 2020, we find conclusive evidence that the DW is stigmatized, especially among smaller banks and when financial markets experience disruptions. In particular, evidence of DW stigma emerged months before the 2023 banking turmoil and had not subsided a year later. We also identify new determinants and consequences of DW stigma. The implications of these results for the provision of emergency liquidity are discussed. |
| Keywords: | discount window; lender of last resort; stigma |
| JEL: | E52 G21 G28 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99159 |
| By: | Hana Braitsch; James Mitchell; Taylor Shiroff |
| Abstract: | This paper shows how both the characteristics and the accuracy of the point and density forecasts from a well-known panel data survey of households' inflationary expectations – the New York Fed's Survey of Consumer Expectations – depend on the tenure of survey respondents. Households' point and density forecasts of inflation become significantly more accurate with repeated practice of completing the survey. These learning gains are best identified when tenure-based combination forecasts are constructed. Tenured households on average produce lower point forecasts of inflation, perceive less forecast uncertainty, round their uncertainty but not their point forecasts, report unimodal densities, and provide internally consistent point and density forecasts. |
| Keywords: | inflation expectations; surveys; forecaster heterogeneity; combination forecasts; density forecasting; learning |
| JEL: | C53 D84 E31 E37 |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:99062 |
| By: | Jonathan Hartley; Nuno Paixão |
| Abstract: | This note analyzes mortgage stress tests, a macroprudential tool. We find that when mortgage stress tests are applied to all mortgage purchase originations, they improve credit quality and reduce credit and house price growth. They also improve the resilience of borrowers to financial shocks, such as the large increase in interest rates during 2022–23. |
| Keywords: | Credit and credit aggregates; Financial institutions; Financial system regulation and policies; Monetary policy |
| JEL: | E5 E52 G2 G21 G28 G5 G50 G51 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-25 |
| By: | Diaz, Adriano |
| Abstract: | Deflation represents an increase in consumer wealth through postponed consumption decisions. State-imposed "monetary policies" not only expropriate this increase in wealth attributed to deflation (a fiscal motive) but also penalize consumers for postponing their consumption of goods and services (a form of social engineering). Consequently, there is a shortfall in the state's legal frameworks adequately protecting consumer freedom and property rights. In response, the Bitcoin network has emerged as a private currency governed by a distinct legal framework rooted in proof-of-work. Consumers holding Bitcoin benefit from the economic advantages of global deflation-advantages often usurped by central banks-and experience enhanced freedom to delay consumption, navigating their life paths free from the constraints of social engineering. Thus, Bitcoin contributes value by addressing the shortfall in state legal systems that safeguard consumer freedom and property rights |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:5dv9s |
| By: | Constantin Bürgi; Mengdi Song |
| Abstract: | Not according to our data. We use two data sets to test whether professional forecasters follow uncovered interest rate parity (UIP) when making their exchange rate predictions both based on point prediction and direction. We find that professional forecasters generally do not follow UIP across a range of currencies and horizons. Given the prevalence of the UIP condition in our international macro models, these results reiterate the importance of finding the drivers for these deviations. |
| Keywords: | focus economics, Bloomberg Survey, exchange rates |
| JEL: | F31 F37 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11338 |
| By: | Zubin Deyal |
| Abstract: | This paper investigates the impact of natural disasters on remittances in developing countries, which are particularly vulnerable to the immediate and long-term effects of such events. In addition to damaging economic capacity, natural disasters are large exogenous shocks which result in capital flight that exacerbates the immediate deficit that developing countries face in their aftermath. Though remittances have proven vital in addressing financing gaps for these countries, their immediate response to natural disasters has not been thoroughly studied. This paper expands the literature by offering a comprehensive analysis of the influence of natural disasters on monthly remittances across 30 developing countries for the 30-year period of 1993 to 2022. In utilising a dynamic fixed effects model on data sourced from respective Central Banks, I find an immediate rise in remittances post-disasters, notably in Asia, Central America, and South America, and specifically in response to hydrological and meteorological disasters. The rise in remittances is typically highest in the month after the disaster, with more intense disasters eliciting a larger increase in remittances. I also find evidence of remittance smoothing, as migrants seem to adjust allocations intertemporally. I further establish a countercyclical relationship between remittances and GDP growth, with inflation, nominal exchange rate depreciations, net migration, and disaster aid negatively impacting remittances. The finding that remittances increase after disasters is robust to different specifications, including System GMM, different periods, dependent variables, and monthly, yearly, and regional fixed effects.Creation-Date: 2023 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:csa:wpaper:2024-01 |
| By: | Doron Sayag (Department of Economics, Bar-Ilan University, Israel); Avichai Snir (Department of Economics, Bar-Ilan University, Israel); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; ICEA; ISET, TSU; Rimini Centre for Economic Analysis) |
| Abstract: | We study Israel’s “price rounding regulation” of January 1, 2014, which outlawed non-0-ending prices, forcing retailers to round 9-ending prices, which in many stores comprised 60%+ of all prices. The regulation’s goals were to eliminate (1) the rounding tax—the extra amount consumers paid because of price rounding (which was necessitated by the abolition of low denomination coins), and (2) the inattention tax—the extra amount consumers paid the retailers because of their inattention to the prices’ rightmost digits. Using 4 different datasets, we assess the government’s success in achieving these goals, focusing on fast-moving consumer goods, a category of products strongly affected by the price rounding regulation. We focus on the response of the retailers to the price rounding regulation and find that although the government succeeded in eliminating the rounding tax, the bottom line is that shoppers end up paying more, not less, because of the regulation, underscoring, once again, Friedman’s (1975) warning that policies should be judged by their results, not by their intentions. |
| Keywords: | Price Rounding Regulation, Rounding Tax, Inattention Penalty, Round Prices, 9-Ending Prices, Just-Below Prices, Inflation |
| JEL: | E31 K00 K20 L11 L40 L51 M30 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:rim:rimwps:24-17 |
| By: | Hunter Ng |
| Abstract: | This article investigates whether the Federal Reserve Chair strategically controls facial expressions during FOMC press conferences and how these nonverbal cues affect financial markets. I use facial recognition technology on videos of press conferences from April 2011 to December 2020 to quantify changes in the Chair's nonverbal signals. Results show that facial expressions serve as a separate public signal, distinct from verbal content. Using deepfakes, I find that the same facial expressions expressed by different Fed Chairs are interpreted differentially. As their tenure increases, negative expressions become more frequent, eliciting adverse market reactions. Furthermore, the markets interpretation of these expressions evolves over time, suggesting that investors process facial cues with dual-processing finite-state Markov memory. In line with the Fed's goals of transparency and non-volatility, I find that Fed Chairs do not strategically control their expressions. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.20214 |
| By: | DeMarzo, Peter (Stanford U); Krishnamurthy, Arvind (Stanford U); Nagel, Stefan (U of Chicago) |
| Abstract: | We develop a theoretical and empirical framework to estimate bank franchise value. In contrast to regulatory guidance and some existing models, we show that sticky deposits combined with low deposit rate betas do not imply a negative duration for franchise value. Operating costs could in principle generate negative duration, but they are more than offset by fixed interest rate spreads that arise largely from banks’ lending activity. As a result, bank franchise value declines as interest rates rise, and this decline exacerbates, rather than offsets, losses on banks’ security holdings. We also show that in the cross section, banks with the least responsive deposit rate tend to invest the most in long-term securities, suggesting that they are motivated to hedge cash flows rather than market value. Finally, despite significant losses to both asset and franchise values stemming from recent rate hikes, our analysis suggests that most U.S. banks still retain sufficient franchise value to remain solvent as ongoing concerns. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:4194 |
| By: | Mirjana Miletic, Danilo Cerovic and Aleksandar Tomin; Mirjana Miletic (National Bank of Serbia); Danilo Cerovic (National Bank of Serbia); Aleksandar Tomin (National Bank of Serbia) |
| Abstract: | The aim of this paper is to examine the extent to which global factors – supply chain disruptions and rising oil prices – affect inflation in Serbia and other European countries, this being particularly important in the context of the ongoing episode of global inflation growth, which is largely a consequence of the outbreak of the Covid-19 pandemic, but also of the energy crisis and the conflict in Ukraine. The analysis was carried out using the panel method, whereby an estimation was made for 31 European countries considered together and separately for European advanced and emerging economies. The analysis was carried out for the period from Q1 2006 to Q2 2023 using the panel ARDL model and estimates were obtained using the PMG and DFE methods, as well as the asymmetric ARDL model, where the inflationary impact of the rise and fall in global energy prices and of the tightening and easing of supply bottlenecks was tested separately. The obtained results suggest that global supply chain disruptions have a statistically significant effect on consumer and producer prices in the long term, and global oil prices in both the short and long term (controlled for the influence of domestic factors). The link between inflation and supply bottlenecks has been confirmed for both advanced and emerging economies, as well as by various disruption indicators (the European Commission’s Business Climate Indicator, measuring the level of disruption specific to a country, and the Fed’s Global Supply Chain Pressure Index, gauging the intensity of global pressures), which indicates the robustness of the obtained estimates. When the asymmetric ARDL model is applied, a higher coefficient is obtained for the indicator of global supply chain disruptions (measured by GSCPI) when a negative shock occurs (their loosening) than in the case of a positive shock (tightening), which is a consequence of the significant drop in this indicator in the last three quarters of the period analysed. This suggests that the obtained result is not robust in relation to the period analysed, which is why, before drawing final conclusions regarding this part of the analysis, the model should be re-evaluated once data for a few more quarters become available. |
| Keywords: | inflation, global supply chain disruptions, energy, panel |
| JEL: | C32 C33 E43 |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:nsb:bilten:19 |