We examine the effects of the Fed's Secondary Market Corporate Credit Facilities (SMCCF) on both firm-level outcomes and bond market conditions. Using secondary bond market transactions matched to corporate balance sheet data, we find borrowers did not raise real investment but increased their share of long-term debt. However, this effect is driven primarily by a flight-to-safety channel rather than the differential impact from SMCCF-eligibility. Moreover, using a bond-level difference-in-differences specification where each eligible bond is matched to an ineligible bond in terms of credit-rating, firm size and industry, we find substantial improvement in liquidity (bid-ask spreads) and cost of borrowing (bond yield). The program also improved bond valuations but the effect was economically small. Overall, our results indicate the Fed's intervention helped restore corporate bond market stability but had relatively smaller effect at the firm-level.
{"title":"Credit in a Crisis: Effects of the Fed's Corporate Bond Market Intervention","authors":"Sharjil Haque, Richard Varghese","doi":"10.2139/ssrn.3870678","DOIUrl":"https://doi.org/10.2139/ssrn.3870678","url":null,"abstract":"We examine the effects of the Fed's Secondary Market Corporate Credit Facilities (SMCCF) on both firm-level outcomes and bond market conditions. Using secondary bond market transactions matched to corporate balance sheet data, we find borrowers did not raise real investment but increased their share of long-term debt. However, this effect is driven primarily by a flight-to-safety channel rather than the differential impact from SMCCF-eligibility. Moreover, using a bond-level difference-in-differences specification where each eligible bond is matched to an ineligible bond in terms of credit-rating, firm size and industry, we find substantial improvement in liquidity (bid-ask spreads) and cost of borrowing (bond yield). The program also improved bond valuations but the effect was economically small. Overall, our results indicate the Fed's intervention helped restore corporate bond market stability but had relatively smaller effect at the firm-level.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"50 24","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91400321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated Taylor coefficients are not sufficient for inferring its underlying preference. We quantify Fed’s objective—the targeting rule—relying on a conditional estimator (Galí and Gambetti 2018) that is free of the classical simultaneity problem. We discover that Fed’s targeting rule remained stable during the pre- and post-Volcker periods—the opposite of what is implied through a Taylor rule estimation.
{"title":"Quantifying the Federal Reserve’s Objectives Using a Structural Vector Autoregressive Model","authors":"Shengliang Ou, Donghai Zhang","doi":"10.2139/ssrn.3522455","DOIUrl":"https://doi.org/10.2139/ssrn.3522455","url":null,"abstract":"The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated Taylor coefficients are not sufficient for inferring its underlying preference. We quantify Fed’s objective—the targeting rule—relying on a conditional estimator (Galí and Gambetti 2018) that is free of the classical simultaneity problem. We discover that Fed’s targeting rule remained stable during the pre- and post-Volcker periods—the opposite of what is implied through a Taylor rule estimation.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"79 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83787885","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Central banks in some emerging market and developing economies (EMDEs) have employed asset purchase programs, in many cases for the first time, in response to pandemic-induced financial market pressures. Using panel regressions, this paper examines the effects of recent announcements of asset purchase programs (APP) on financial market developments in EMDEs. The results suggest that the asset purchase programs in EMDEs have been more effective at lowering government and private sector bond yields and sovereign CDS than announcements of policy rate cuts and spillovers from advanced-economy asset purchase announcements. The reduction in bond yields driven by APP announcements was largest in economies with higher consumer price inflation, initial bond yields, and CDS spreads and did not result in currency depreciation on average. The effects are consistent with reduced risk premia being a key channel for the operation of EMDE APPs.
{"title":"Financial Market Effects of Asset Purchase Programs in Emerging Markets: An Early Assessment","authors":"Jongrim Ha, Gene Kindberg-Hanlon","doi":"10.2139/ssrn.3825293","DOIUrl":"https://doi.org/10.2139/ssrn.3825293","url":null,"abstract":"Central banks in some emerging market and developing economies (EMDEs) have employed asset purchase programs, in many cases for the first time, in response to pandemic-induced financial market pressures. Using panel regressions, this paper examines the effects of recent announcements of asset purchase programs (APP) on financial market developments in EMDEs. The results suggest that the asset purchase programs in EMDEs have been more effective at lowering government and private sector bond yields and sovereign CDS than announcements of policy rate cuts and spillovers from advanced-economy asset purchase announcements. The reduction in bond yields driven by APP announcements was largest in economies with higher consumer price inflation, initial bond yields, and CDS spreads and did not result in currency depreciation on average. The effects are consistent with reduced risk premia being a key channel for the operation of EMDE APPs.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"108 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86214407","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present a dynamic incomplete information model where monetary and fiscal policy instruments serve as endogenous signals for the private sector. We highlight a novel information channel of policy interactions, and show the general equilibrium (GE) information feedback between policies largely shapes the economy's response to policy shocks. We document a non-monotone signaling effect of policies with respect to the policy rule parameters. Our analysis shows the GE information feedback is quantitatively significant, and the model provides a unified explanation of the various policy impacts on inflation, the dynamics of survey expectations, and the missing inflation after the Great Recession.
{"title":"Learning from Monetary and Fiscal Policy","authors":"Zhao Han, Fei Tan, Jieran Wu","doi":"10.2139/ssrn.3726905","DOIUrl":"https://doi.org/10.2139/ssrn.3726905","url":null,"abstract":"We present a dynamic incomplete information model where monetary and fiscal policy instruments serve as endogenous signals for the private sector. We highlight a novel information channel of policy interactions, and show the general equilibrium (GE) information feedback between policies largely shapes the economy's response to policy shocks. We document a non-monotone signaling effect of policies with respect to the policy rule parameters. Our analysis shows the GE information feedback is quantitatively significant, and the model provides a unified explanation of the various policy impacts on inflation, the dynamics of survey expectations, and the missing inflation after the Great Recession.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89315051","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Russian Abstract: Цель данной работы заключается в разработке методологии необходимой для проведения количественной оценки эффекта переноса цен на нефтепродукты на уровень инфляции. На основании полученных результатов предлагаются рекомендации, направленные на повышение эффективности таргетирования инфляции в России.
English Abstract: The aim of the study is to develop methodology to evaluate the oil products pass-through effect on inflation. Estimated results will be used for development of recommendations needed for improving the effectiveness of inflation targeting policy in Russian Federation.
{"title":"ИССЛЕДОВАНИЕ ПЕРЕНОСА РОЗНИЧНЫХ ЦЕН НА НЕФТЕПРОДУКТЫ НА РЕГИОНАЛЬНЫЙ УРОВЕНЬ ИНФЛЯЦИИ (Research Transfer of Retail Prices for Petroleum Products to the Regional Level of Inflation)","authors":"Dmitry Gordeev, Ruslan Naumyanov","doi":"10.2139/ssrn.3860837","DOIUrl":"https://doi.org/10.2139/ssrn.3860837","url":null,"abstract":"<b>Russian Abstract:</b> Цель данной работы заключается в разработке методологии необходимой для проведения количественной оценки эффекта переноса цен на нефтепродукты на уровень инфляции. На основании полученных результатов предлагаются рекомендации, направленные на повышение эффективности таргетирования инфляции в России. <br><br><b>English Abstract:</b> The aim of the study is to develop methodology to evaluate the oil products pass-through effect on inflation. Estimated results will be used for development of recommendations needed for improving the effectiveness of inflation targeting policy in Russian Federation.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"55 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87351097","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The study investigated the impact of stagflation on stock market returns under two Control variables that economic policies and the characteristics of the stock market. The study included nine countries (Brazil, Egypt, Indonesia, Korea, Malaysia, Pakistan, Singapore, South Africa, and Turkey) during the period from 2005 to 2018. We found that for the economic policies within the lag period under stagflation, the characteristics of each economy and stock market within and outside of the lag period were between 25.74% and 16.20% of the returns of stock markets, respectively. The current study explains the different results according to the different methods of study, in particular with regard to the use of the lag period, which was beneficial for the economic policy but not beneficial with stagflation. In addition, the different abilities of each economy created value-added from production factors with the different levels of efficiency of the stock exchanges. Finally, rational investment in stock exchanges requires the ability to classify the policies and economic variables and determine the extent of their time contributions to caret stock return within/outside the lag period. This area is a fertile field in financial economics research, particularly to develop theories and models.
{"title":"Stock Market Return and Stagflation Under Two Control Variables: International Evidence","authors":"Osama Wagdi, Ahmed Abdelbaset, Sharihan Sharihan","doi":"10.2139/ssrn.3864984","DOIUrl":"https://doi.org/10.2139/ssrn.3864984","url":null,"abstract":"The study investigated the impact of stagflation on stock market returns under two Control variables that economic policies and the characteristics of the stock market. The study included nine countries (Brazil, Egypt, Indonesia, Korea, Malaysia, Pakistan, Singapore, South Africa, and Turkey) during the period from 2005 to 2018. We found that for the economic policies within the lag period under stagflation, the characteristics of each economy and stock market within and outside of the lag period were between 25.74% and 16.20% of the returns of stock markets, respectively. The current study explains the different results according to the different methods of study, in particular with regard to the use of the lag period, which was beneficial for the economic policy but not beneficial with stagflation. In addition, the different abilities of each economy created value-added from production factors with the different levels of efficiency of the stock exchanges. Finally, rational investment in stock exchanges requires the ability to classify the policies and economic variables and determine the extent of their time contributions to caret stock return within/outside the lag period. This area is a fertile field in financial economics research, particularly to develop theories and models.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"60 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84648038","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Spanish abstract: En esta nota se abordan las implicaciones sobre el sistema financiero que el proceso acelerado de dolarización está generando en Venezuela. Así mismo, se hacen un conjunto de consideraciones en torno a las condiciones que deben producirse para que se avance en la desdolarización de la economía y del sistema financiero.
English abstract: This note addresses the implications on the financial system that the accelerated dollarization process is generating in Venezuela. In addition, the factors that determine the progress in the de-dollarization of the economy and the financial system are considered.
{"title":"La dolarización y el sistema financiero (Dollarization and the Financial System)","authors":"Luis Zambrano Sequín","doi":"10.2139/ssrn.3817702","DOIUrl":"https://doi.org/10.2139/ssrn.3817702","url":null,"abstract":"<b>Spanish abstract:</b> En esta nota se abordan las implicaciones sobre el sistema financiero que el proceso acelerado de dolarización está generando en Venezuela. Así mismo, se hacen un conjunto de consideraciones en torno a las condiciones que deben producirse para que se avance en la desdolarización de la economía y del sistema financiero.<br><br><b>English abstract:</b> This note addresses the implications on the financial system that the accelerated dollarization process is generating in Venezuela. In addition, the factors that determine the progress in the de-dollarization of the economy and the financial system are considered.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"30 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85838630","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
States have routinely changed the form and the transmission mechanisms of money, from the ancient practice of coin de-basement, to the introduction of the Euro in 1999, or the recent push towards cashless payments. Very little has been said on the impact that monetary transitions have on money holders’ existing property rights. This article uses the 2016 Indian demonetization as a starting point to analyze, from a theoretical perspective, the challenges faced by states and individuals in the context of monetary transitions. This article argues that the process of conversion from one type of money to another can entail substantial practical, legal, or financial hurdles for money holders. For instance, individuals might not have access to banks, or they could be unable to operate digital payments. I define those hurdles as ‘‘transition costs.” I argue that such transition costs negatively affect property rights, and have a disproportionate impact on the poor.
{"title":"Monetary Transitions and Property Rights: Lessons From India’s 2016 Demonetization","authors":"Federico Lupo-Pasini","doi":"10.2139/ssrn.3848555","DOIUrl":"https://doi.org/10.2139/ssrn.3848555","url":null,"abstract":"States have routinely changed the form and the transmission mechanisms of money, from the ancient practice of coin de-basement, to the introduction of the Euro in 1999, or the recent push towards cashless payments. Very little has been said on the impact that monetary transitions have on money holders’ existing property rights. This article uses the 2016 Indian demonetization as a starting point to analyze, from a theoretical perspective, the challenges faced by states and individuals in the context of monetary transitions. This article argues that the process of conversion from one type of money to another can entail substantial practical, legal, or financial hurdles for money holders. For instance, individuals might not have access to banks, or they could be unable to operate digital payments. I define those hurdles as ‘‘transition costs.” I argue that such transition costs negatively affect property rights, and have a disproportionate impact on the poor.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"84 2 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77532874","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the forces driving dollar funding stress under adverse market conditions for EMEAP economies. We find that the response of dollar funding conditions to changes in macro-financial variables differs significantly between orderly and turbulent markets. In orderly markets, idiosyncratic dollar strength, and its volatility and market expectations, are key factors affecting the stress for the economy. Monetary policy divergence, which to a large extent reflects the position of the economy relative to the US in the economic cycle, also plays an important role in the short-term funding market. In turbulent markets, the effect of these variables except the volatility of dollar strength against individual currencies, which retains a strong influence, diminishes or even vanishes. Instead, the credit worthiness of the government and corporate sectors, which is found to have little impact under normal market conditions, emerges as a major stress determinant, and becomes increasingly influential as adversity intensifies.
{"title":"What Drives Dollar Funding Stress in Distress?","authors":"Yuewen Tang, A. Wong","doi":"10.2139/ssrn.3757294","DOIUrl":"https://doi.org/10.2139/ssrn.3757294","url":null,"abstract":"We study the forces driving dollar funding stress under adverse market conditions for EMEAP economies. We find that the response of dollar funding conditions to changes in macro-financial variables differs significantly between orderly and turbulent markets. In orderly markets, idiosyncratic dollar strength, and its volatility and market expectations, are key factors affecting the stress for the economy. Monetary policy divergence, which to a large extent reflects the position of the economy relative to the US in the economic cycle, also plays an important role in the short-term funding market. In turbulent markets, the effect of these variables except the volatility of dollar strength against individual currencies, which retains a strong influence, diminishes or even vanishes. Instead, the credit worthiness of the government and corporate sectors, which is found to have little impact under normal market conditions, emerges as a major stress determinant, and becomes increasingly influential as adversity intensifies.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"32 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81877181","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the heterogeneous effects of monetary policy on workers with different levels of labor force attachment. Exploiting variation in labor market tightness across metropolitan areas, we show that the employment of populations with lower labor force attachment--Blacks, high school dropouts, and women--is more responsive to expansionary monetary policy in tighter labor markets. We develop a New Keynesian model with heterogeneous workers that explains these results. The model shows that expansionary monetary shocks lead to larger and more persistent increases in the employment of low attachment populations when the central bank follows an average inflation targeting rule and when the Phillips curve is flatter. These findings suggest that the Federal Reserve's recent move from a strict to an average inflation targeting framework will especially benefit workers with lower labor force attachment.
{"title":"Heterogeneous Labor Market Effects of Monetary Policy","authors":"Nittai K. Bergman, David A. Matsa, Michael Weber","doi":"10.2139/ssrn.3757645","DOIUrl":"https://doi.org/10.2139/ssrn.3757645","url":null,"abstract":"This paper analyzes the heterogeneous effects of monetary policy on workers with different levels of labor force attachment. Exploiting variation in labor market tightness across metropolitan areas, we show that the employment of populations with lower labor force attachment--Blacks, high school dropouts, and women--is more responsive to expansionary monetary policy in tighter labor markets. We develop a New Keynesian model with heterogeneous workers that explains these results. The model shows that expansionary monetary shocks lead to larger and more persistent increases in the employment of low attachment populations when the central bank follows an average inflation targeting rule and when the Phillips curve is flatter. These findings suggest that the Federal Reserve's recent move from a strict to an average inflation targeting framework will especially benefit workers with lower labor force attachment.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"17 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84385330","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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