This paper studies the impact of household indebtedness on the consumption channel of monetary policy using the Chinese household-level survey data. We employ a panel smooth transition regression model to investigate the non-linear role of indebtedness. We find that housing-related indebtedness weakens the monetary policy transmission, and this effect is non-linear as there is a much larger counteraction of consumption in response to monetary policy shocks when household indebtedness increases from a low level rather than from a high level. Moreover, the weakened monetary policy transmission from indebtedness is stronger in urban households than in rural households. This can be explained by the investment good characteristic of houses in China.
{"title":"Household Indebtedness and the Consumption Channel of Monetary Policy: Evidence from China","authors":"M. Funke, Xiang Li, Doudou Zhong","doi":"10.2139/ssrn.3951124","DOIUrl":"https://doi.org/10.2139/ssrn.3951124","url":null,"abstract":"This paper studies the impact of household indebtedness on the consumption channel of monetary policy using the Chinese household-level survey data. We employ a panel smooth transition regression model to investigate the non-linear role of indebtedness. We find that housing-related indebtedness weakens the monetary policy transmission, and this effect is non-linear as there is a much larger counteraction of consumption in response to monetary policy shocks when household indebtedness increases from a low level rather than from a high level. Moreover, the weakened monetary policy transmission from indebtedness is stronger in urban households than in rural households. This can be explained by the investment good characteristic of houses in China.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131308142","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 provides a comprehensive analysis of the interest rate pass-through of euro area monetary policy to retail rates outside the euro area, contributing to the literature on the consequences of unofficial financial euroisation and on the transmission channels of monetary policy spillovers. The results suggest that in the long run, more than one third of all euro retail rates in euroised countries of central, eastern and south-eastern Europe (CESEE) are linked to the euro area shadow rate. Compared to euro area monetary policy, the share of cointegration of the domestic monetary policy rate is lower, suggesting that domestic central banks in euroised countries with independent monetary policy can only partially control the `euro part´ of the interest rate channel. Furthermore, euro area monetary policy shocks are fast and persistently transmitted into euro retail rates outside the euro area, which constitutes an additional channel of international shock transmission.
{"title":"The Transmission of Euro Area Monetary Policy to Financially Euroised Countries","authors":"Isabella Moder","doi":"10.2139/ssrn.3945258","DOIUrl":"https://doi.org/10.2139/ssrn.3945258","url":null,"abstract":"This paper provides a comprehensive analysis of the interest rate pass-through of euro area monetary policy to retail rates outside the euro area, contributing to the literature on the consequences of unofficial financial euroisation and on the transmission channels of monetary policy spillovers. The results suggest that in the long run, more than one third of all euro retail rates in euroised countries of central, eastern and south-eastern Europe (CESEE) are linked to the euro area shadow rate. Compared to euro area monetary policy, the share of cointegration of the domestic monetary policy rate is lower, suggesting that domestic central banks in euroised countries with independent monetary policy can only partially control the `euro part´ of the interest rate channel. Furthermore, euro area monetary policy shocks are fast and persistently transmitted into euro retail rates outside the euro area, which constitutes an additional channel of international shock transmission.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116166129","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 new measures of monetary policy shocks for India using high-frequency data, creating a publicly available event study dataset as a byproduct. In addition to capturing surprises to the Reserve Bank of India's (RBI) policy rate, our shocks suggest that financial markets infer substantial information about the future path of the policy rate from RBI communication. We conduct a narrative analysis of official statements and corresponding media discussion on prominent RBI announcement dates to help understand how markets use RBI communication to update their expectations. Bond and stock markets react strongly to these monetary shocks, but exhibit notable heterogeneity across governor regimes. Finally, we use the monetary shocks as external instruments to identify the impact on macroeconomic variables in a structural vector autoregression. We find some evidence of the conventional transmission of monetary policy to prices but not to output.
{"title":"Measuring Monetary Policy Shocks in India","authors":"Aeimit Lakdawala, Rajeswari Sengupta","doi":"10.2139/ssrn.3905642","DOIUrl":"https://doi.org/10.2139/ssrn.3905642","url":null,"abstract":"We present new measures of monetary policy shocks for India using high-frequency data, creating a publicly available event study dataset as a byproduct. In addition to capturing surprises to the Reserve Bank of India's (RBI) policy rate, our shocks suggest that financial markets infer substantial information about the future path of the policy rate from RBI communication. We conduct a narrative analysis of official statements and corresponding media discussion on prominent RBI announcement dates to help understand how markets use RBI communication to update their expectations. Bond and stock markets react strongly to these monetary shocks, but exhibit notable heterogeneity across governor regimes. Finally, we use the monetary shocks as external instruments to identify the impact on macroeconomic variables in a structural vector autoregression. We find some evidence of the conventional transmission of monetary policy to prices but not to output.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"350 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131551863","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 studies whether and how banks’ technology adoption affects the bank lending channel of monetary policy transmission. We construct a new measurement of bank-level technology adoption, which can tell whether the technology is related to the bank’s lending business and which specific technology is adopted. We find that lending-related technology adoption significantly strengthens the transmission of the bank lending channel, meanwhile, adopting technologies that are not related to lending activities significantly mitigates that. By technology categories, the adoption of cloud computing technology displays the largest impact on strengthening the bank lending channel. Moreover, higher exposure to BigTech competition is significantly associated with a weaker reaction to monetary policy shocks.
{"title":"Technology Adoption and the Bank Lending Channel of Monetary Policy Transmission","authors":"I. Hasan, Xiang Li","doi":"10.2139/ssrn.3928813","DOIUrl":"https://doi.org/10.2139/ssrn.3928813","url":null,"abstract":"This paper studies whether and how banks’ technology adoption affects the bank lending channel of monetary policy transmission. We construct a new measurement of bank-level technology adoption, which can tell whether the technology is related to the bank’s lending business and which specific technology is adopted. We find that lending-related technology adoption significantly strengthens the transmission of the bank lending channel, meanwhile, adopting technologies that are not related to lending activities significantly mitigates that. By technology categories, the adoption of cloud computing technology displays the largest impact on strengthening the bank lending channel. Moreover, higher exposure to BigTech competition is significantly associated with a weaker reaction to monetary policy shocks.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121333447","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}
Many of the claims put forth by Modern Monetary Theory (MMT) center around the state’s monopoly over its own currency. In this paper I interrogate the plausibility of two claims: 1) MMT’s theory of the price level—that the price level is a function of prices paid by government when it spends—and 2) the claim that the cause of deficient effective demand is the state’s failure to supply government liabilities so as to meet the demand for net financial assets. I do so by building a model of “monopoly money” capable of producing these two outcomes.
{"title":"Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment","authors":"Samuel Levey","doi":"10.2139/ssrn.3914919","DOIUrl":"https://doi.org/10.2139/ssrn.3914919","url":null,"abstract":"Many of the claims put forth by Modern Monetary Theory (MMT) center around the state’s monopoly over its own currency. In this paper I interrogate the plausibility of two claims: 1) MMT’s theory of the price level—that the price level is a function of prices paid by government when it spends—and 2) the claim that the cause of deficient effective demand is the state’s failure to supply government liabilities so as to meet the demand for net financial assets. I do so by building a model of “monopoly money” capable of producing these two outcomes.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116142116","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 extend the Smooth Transition Vector Autoregressive model to allow for identification via a combination of external instruments and sign restrictions, while estimating rather than calibrating the parameters ruling the nonlinearity of the model. We hence offer an alternative to using the recursive identification with selected calibrated parameters, which is the main approach currently available. We use the model to study how the effects of monetary policy shocks change over the business cycle. We show that financial variables, inflation and output respond to a monetary shock more in a recession than in an expansion, in line with the predictions from the financial accelerator literature.
{"title":"Monetary policy shocks over the business cycle: Extending the Smooth Transition framework","authors":"Michele Piffer","doi":"10.2139/ssrn.3848067","DOIUrl":"https://doi.org/10.2139/ssrn.3848067","url":null,"abstract":"We extend the Smooth Transition Vector Autoregressive model to allow for identification via a combination of external instruments and sign restrictions, while estimating rather than calibrating the parameters ruling the nonlinearity of the model. We hence offer an alternative to using the recursive identification with selected calibrated parameters, which is the main approach currently available. We use the model to study how the effects of monetary policy shocks change over the business cycle. We show that financial variables, inflation and output respond to a monetary shock more in a recession than in an expansion, in line with the predictions from the financial accelerator literature.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127369710","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}
While it has become common to regard the international monetary system as hierarchical, the nature, shape and origin of this hierarchy often remain vague. Taking on board insights of critical macro-finance, this study from the Global Economic Governance Initiative at the Global Development Policy Center conceptualizes international monetary hierarchy by focusing on different mechanisms to supply emergency US-Dollar (USD) liquidity from the Federal Reserve (Fed) to non-US central banks and develops a model of the global financial architecture as a web of hierarchical interlocking balance sheets. The model perceives today’s international monetary system as an ‘Offshore USD System,’ as it is based on using and creating USD-denominated credit money instruments ‘offshore’, i.e. outside the US. The centrality of the USD as global ‘key currency’ places the US monetary jurisdiction at the apex and pushes all other monetary jurisdictions into a peripheral position. While private credit money creation is the default mechanism in normal times, central banks become paramount when private credit money instruments are about to endogenously implode in a crisis. The mechanisms through which non-US central banks can access emergency USD liquidity from the Fed determine the international hierarchy below the apex. Currently, there are three different mechanisms for non-US central banks to access the Fed’s balance sheet to attain emergency USD liquidity: the Fed’s central bank swap lines, the Fed’s new repo facility for Foreign and International Monetary Authorities (FIMA), and the Special Drawing Rights (SDR) system administered by the International Monetary Fund. These mechanisms create three peripheral layers in the Offshore USD System. Not only do they matter when they are actually used in systemic crises, but also during normal times. Peripheral monetary jurisdictions that are higher up in the international hierarchy receive a more flexible and inexpensive implicit liquidity guarantee that increases their banking systems’ elasticity space.
{"title":"The Hierarchy of the Offshore US-Dollar System. On Swap Lines, the FIMA Repo Facility and Special Drawing Rights","authors":"Steffen Murau, Fabian Pape, Tobias Pforr","doi":"10.2139/ssrn.3780794","DOIUrl":"https://doi.org/10.2139/ssrn.3780794","url":null,"abstract":"While it has become common to regard the international monetary system as hierarchical, the nature, shape and origin of this hierarchy often remain vague. \u0000 \u0000Taking on board insights of critical macro-finance, this study from the Global Economic Governance Initiative at the Global Development Policy Center conceptualizes international monetary hierarchy by focusing on different mechanisms to supply emergency US-Dollar (USD) liquidity from the Federal Reserve (Fed) to non-US central banks and develops a model of the global financial architecture as a web of hierarchical interlocking balance sheets. \u0000 \u0000The model perceives today’s international monetary system as an ‘Offshore USD System,’ as it is based on using and creating USD-denominated credit money instruments ‘offshore’, i.e. outside the US. The centrality of the USD as global ‘key currency’ places the US monetary jurisdiction at the apex and pushes all other monetary jurisdictions into a peripheral position. While private credit money creation is the default mechanism in normal times, central banks become paramount when private credit money instruments are about to endogenously implode in a crisis. The mechanisms through which non-US central banks can access emergency USD liquidity from the Fed determine the international hierarchy below the apex. \u0000 \u0000Currently, there are three different mechanisms for non-US central banks to access the Fed’s balance sheet to attain emergency USD liquidity: the Fed’s central bank swap lines, the Fed’s new repo facility for Foreign and International Monetary Authorities (FIMA), and the Special Drawing Rights (SDR) system administered by the International Monetary Fund. \u0000 \u0000These mechanisms create three peripheral layers in the Offshore USD System. Not only do they matter when they are actually used in systemic crises, but also during normal times. Peripheral monetary jurisdictions that are higher up in the international hierarchy receive a more flexible and inexpensive implicit liquidity guarantee that increases their banking systems’ elasticity space.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"107 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115952727","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 role of firm heterogeneity in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their degree of cyclicality, and hence, exposure to aggregate risk, leading to firm-specific risk premia that influence resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation, but where total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP. Inefficiencies distort this tradeoff and result in either excessive volatility or depressed output, implying a role for corrective policy. Embedding this mechanism into a workhorse New Keynesian model, we show that allocational considerations can strengthen the incentives for leaning against the wind, i.e., optimal policy is more strongly countercyclical than in an observationally equivalent economy that abstracts from heterogeneity. A quantitative exercise suggests that the losses from ignoring heterogeneity can be substantial, which stem largely from a less productive allocation of resources and so depressed TFP and output.
{"title":"Risk-Taking, Capital Allocation and Optimal Monetary Policy","authors":"J. David, David Zeke","doi":"10.21033/WP-2021-01","DOIUrl":"https://doi.org/10.21033/WP-2021-01","url":null,"abstract":"We study the role of firm heterogeneity in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their degree of cyclicality, and hence, exposure to aggregate risk, leading to firm-specific risk premia that influence resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation, but where total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP. Inefficiencies distort this tradeoff and result in either excessive volatility or depressed output, implying a role for corrective policy. Embedding this mechanism into a workhorse New Keynesian model, we show that allocational considerations can strengthen the incentives for leaning against the wind, i.e., optimal policy is more strongly countercyclical than in an observationally equivalent economy that abstracts from heterogeneity. A quantitative exercise suggests that the losses from ignoring heterogeneity can be substantial, which stem largely from a less productive allocation of resources and so depressed TFP and output.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116746892","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}
Does monetary policy influence the maturity structure of corporate debt? We answer this question exploiting: i) time-series and firm-level data on debt maturity for the US corporate sector; ii) several proxies of FED monetary interest rate shocks. Our results show that a loosening of the policy rate lengthens corporate debt maturity, an effect entirely driven by the adjustments of very large companies. We explain such findings through a model combining moral-hazard frictions and yield-seeking investors, who increase their demand of long-term debt-securities when the policy rate goes down. Only large and unconstrained companies can accommodate the demand shift. Empirical evidence on the response of corporate bonds’ issuance by large companies and holdings by mutual funds validates our proposed mechanism.
{"title":"Monetary Policy and Corporate Debt Maturity","authors":"Andrea Fabiani, J. Heineken, Luigi Falasconi","doi":"10.2139/ssrn.3945615","DOIUrl":"https://doi.org/10.2139/ssrn.3945615","url":null,"abstract":"Does monetary policy influence the maturity structure of corporate debt? We answer this question exploiting: i) time-series and firm-level data on debt maturity for the US corporate sector; ii) several proxies of FED monetary interest rate shocks. Our results show that a loosening of the policy rate lengthens corporate debt maturity, an effect entirely driven by the adjustments of very large companies. We explain such findings through a model combining moral-hazard frictions and yield-seeking investors, who increase their demand of long-term debt-securities when the policy rate goes down. Only large and unconstrained companies can accommodate the demand shift. Empirical evidence on the response of corporate bonds’ issuance by large companies and holdings by mutual funds validates our proposed mechanism.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134117070","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}
In environments where heterogeneous indivisible resources are being allocated without monetary transfers and each agent has a unit demand, we show that an allocation mechanism is individually strategy-proof and Arrovian efficient, i.e., it always selects the best outcome with respect to some Arrovian social welfare function if, and only if, the mechanism is group strategy-proof and Pareto efficient. Re-interpreting Arrow's Independence of Irrelevant Alternatives in terms of auditability of the mechanism, we further show that these are precisely the mechanisms that are strategy-proof, Pareto efficient, and auditable.
{"title":"Arrovian Efficiency and Auditability in the Allocation of Discrete Resources","authors":"M. Pycia, M. Utku Ünver","doi":"10.5167/UZH-193675","DOIUrl":"https://doi.org/10.5167/UZH-193675","url":null,"abstract":"In environments where heterogeneous indivisible resources are being allocated without monetary transfers and each agent has a unit demand, we show that an allocation mechanism is individually strategy-proof and Arrovian efficient, i.e., it always selects the best outcome with respect to some Arrovian social welfare function if, and only if, the mechanism is group strategy-proof and Pareto efficient. Re-interpreting Arrow's Independence of Irrelevant Alternatives in terms of auditability of the mechanism, we further show that these are precisely the mechanisms that are strategy-proof, Pareto efficient, and auditable.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114447607","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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