Pub Date : 2020-12-01DOI: 10.5089/9781513564630.001.A001
J. Vlček, M. Pranovich, P. Hitayezu, Bruno Mwenese, Christian Nyalihama
National Bank of Rwanda (BNR) modernized monetary policy and transited to the price-based policy framework in January 2019. The Forecasting and Policy Analysis System (FPAS) is the cornerstone for the new forward-looking framework, which mobilizes and organizes resources and sets processes for regular forecasting rounds. The core of this system is a structural macroeconomic model for macroeconomic analysis and projections to support the BNR staff’s policy recommendations to the monetary policy committee. This paper documents the quarterly projection model (QPM) at the core of the FPAS at the BNR. The model is an extension of the canonical structure in Berg et al (2006) to reflect specifics of the interest-rate-based policy framework with a managed exchange rate, the effect of agricultural sector and harvests on prices, and the role of fiscal policies and aid flows.
{"title":"Quarterly Projection Model for the National Bank of Rwanda","authors":"J. Vlček, M. Pranovich, P. Hitayezu, Bruno Mwenese, Christian Nyalihama","doi":"10.5089/9781513564630.001.A001","DOIUrl":"https://doi.org/10.5089/9781513564630.001.A001","url":null,"abstract":"National Bank of Rwanda (BNR) modernized monetary policy and transited to the price-based policy framework in January 2019. The Forecasting and Policy Analysis System (FPAS) is the cornerstone for the new forward-looking framework, which mobilizes and organizes resources and sets processes for regular forecasting rounds. The core of this system is a structural macroeconomic model for macroeconomic analysis and projections to support the BNR staff’s policy recommendations to the monetary policy committee. This paper documents the quarterly projection model (QPM) at the core of the FPAS at the BNR. The model is an extension of the canonical structure in Berg et al (2006) to reflect specifics of the interest-rate-based policy framework with a managed exchange rate, the effect of agricultural sector and harvests on prices, and the role of fiscal policies and aid flows.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127168068","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}
Monetary Policy and the Balance of Payments are key parameters in a country, in elevating the economy to the next favorable level. Balance of payments can be used as a measurement to understand whether the country in question is in debt to the rest of the world. Proper management of the mentioned parameters though different vital. The aim of this study is to analyze the impact of the monetary expansion on Balance of Payments. Furthermore, in order to identify the impact of monetary expansion on the balance of payment, paper investigates the fluctuation of interest rate, inflation rate and exchange rate on Balance of payment. For this purpose, data from Central Bank of Sri Lanka and world bank were collected for a sample period of twenty-three years from 1995 to 2018. In this regard, qualitative research though different literature sources and simple linear regression technique has been used. The data analyze concluded that there is a negative string relationship among the country's balance of Payment and broad money supply. Furthermore, it was noted that in Sri Lanka interest rate, inflation rate and the exchange rate to have a negative impact on the Balance of payments.
{"title":"Systematic Importance of Monetary Expansion on Economy Through the Impact of Balance of Payments; A Look Through the Sri Lankan Economy 1995–2018","authors":"Kalhara Kathriarachchige","doi":"10.2139/ssrn.3544527","DOIUrl":"https://doi.org/10.2139/ssrn.3544527","url":null,"abstract":"Monetary Policy and the Balance of Payments are key parameters in a country, in elevating the economy to the next favorable level. Balance of payments can be used as a measurement to understand whether the country in question is in debt to the rest of the world. Proper management of the mentioned parameters though different vital. The aim of this study is to analyze the impact of the monetary expansion on Balance of Payments. Furthermore, in order to identify the impact of monetary expansion on the balance of payment, paper investigates the fluctuation of interest rate, inflation rate and exchange rate on Balance of payment. For this purpose, data from Central Bank of Sri Lanka and world bank were collected for a sample period of twenty-three years from 1995 to 2018. In this regard, qualitative research though different literature sources and simple linear regression technique has been used. The data analyze concluded that there is a negative string relationship among the country's balance of Payment and broad money supply. Furthermore, it was noted that in Sri Lanka interest rate, inflation rate and the exchange rate to have a negative impact on the Balance of payments.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116440786","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}
Pub Date : 2019-12-01DOI: 10.5089/9781513521992.001
Nicolas Denewet, A. Manzanera, Sanjeev Matai, Elie Chamoun
Effective risk management at central banks is best enabled by a sound framework embedded throughout the organization that supports the design and execution of risk management activities. To evaluate the risk management practices at a central bank, the Safeguards Assessments Division of the IMF’s Finance Department developed a tool that facilitates stocktaking of elements that are present and categorizes the function based on its maturity. Tailored recommendations are then provided to the central bank which provide a roadmap to advance the risk management function.
{"title":"Risk Management Maturity Assessment at Central Banks","authors":"Nicolas Denewet, A. Manzanera, Sanjeev Matai, Elie Chamoun","doi":"10.5089/9781513521992.001","DOIUrl":"https://doi.org/10.5089/9781513521992.001","url":null,"abstract":"Effective risk management at central banks is best enabled by a sound framework embedded throughout the organization that supports the design and execution of risk management activities. To evaluate the risk management practices at a central bank, the Safeguards Assessments Division of the IMF’s Finance Department developed a tool that facilitates stocktaking of elements that are present and categorizes the function based on \u0000its maturity. Tailored recommendations are then provided to the central bank which \u0000provide a roadmap to advance the risk management function.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115669983","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}
Loans and Advance section of a bank is very important because the success of this department helps to increase its business. If this section does not properly work, the bank itself may become bankrupt. Bank makes loans and advances mostly to traders, businessmen, and industrialists. Although the nature of credit may differ in terms of security requirement, disbursement provision terms and conditions etc. To ensure secured banking Agrani Bank Limited works closely with its clients, the regulatory authorities, the shareholders, other banks and financial institutions. This bank recently achieved lots of milestones rather than other banks. The credit administration of this bank works very efficiently where loan documentation is performed by the experienced bankers. Presently the management is focusing on reducing Non-performing loans (NPLs) which is a big step of loan recovery. Apart from these, Agrani Bank Limited provides other services and some kinds of value added services for the welfare of the people. However, Loan and Advances is the most important asset as well as the primary sources of earning of a bank which help to improve financial health of a bank.
银行的贷款和预支部非常重要，因为这个部门的成功有助于增加业务。如果这部分不能正常工作，银行本身可能会破产。银行主要向商人、商人和工业家发放贷款和垫款。尽管信贷的性质可能在担保要求、支付条款和条件等方面有所不同。为了确保有担保的银行业务，Agrani Bank Limited与其客户、监管机构、股东、其他银行和金融机构密切合作。这家银行最近比其他银行取得了许多里程碑式的成就。这家银行的信贷管理工作效率很高，贷款文件由经验丰富的银行家执行。目前，管理层正致力于减少不良贷款(NPLs)，这是收回贷款的一大步。除此之外，Agrani Bank Limited还提供其他服务和一些增值服务，为人民谋福利。然而，贷款和预付款是银行最重要的资产，也是银行收入的主要来源，有助于改善银行的财务健康状况。
{"title":"A Study on Loan and Advances of a Commercial Bank","authors":"Md. Ashabur Rahman","doi":"10.2139/ssrn.3464783","DOIUrl":"https://doi.org/10.2139/ssrn.3464783","url":null,"abstract":"Loans and Advance section of a bank is very important because the success of this department helps to increase its business. If this section does not properly work, the bank itself may become bankrupt. Bank makes loans and advances mostly to traders, businessmen, and industrialists. Although the nature of credit may differ in terms of security requirement, disbursement provision terms and conditions etc. To ensure secured banking Agrani Bank Limited works closely with its clients, the regulatory authorities, the shareholders, other banks and financial institutions. This bank recently achieved lots of milestones rather than other banks. The credit administration of this bank works very efficiently where loan documentation is performed by the experienced bankers. Presently the management is focusing on reducing Non-performing loans (NPLs) which is a big step of loan recovery. Apart from these, Agrani Bank Limited provides other services and some kinds of value added services for the welfare of the people. However, Loan and Advances is the most important asset as well as the primary sources of earning of a bank which help to improve financial health of a bank.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115437550","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 CBN recently re-introduced a cashless policy, which is aimed at promoting development and the modernisation of our payment system, reducing the cost of banking services through the provision of more efficient transaction options; and also serve as means of curbing inflation and boasting economic growth. This paper evaluates this policy as well as potential benefits and challenges that may arise from the implementation of the policy.
{"title":"An Evaluation of the Central Bank of Nigeria's Cashless Policy","authors":"Ikemefuna Stephen Nwoye","doi":"10.2139/ssrn.3458998","DOIUrl":"https://doi.org/10.2139/ssrn.3458998","url":null,"abstract":"The CBN recently re-introduced a cashless policy, which is aimed at promoting development and the modernisation of our payment system, reducing the cost of banking services through the provision of more efficient transaction options; and also serve as means of curbing inflation and boasting economic growth. \u0000 \u0000This paper evaluates this policy as well as potential benefits and challenges that may arise from the implementation of the policy.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125601926","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}
Pub Date : 2019-09-01DOI: 10.5089/9781513512532.001
B. Bakker
In the last few decades, real GDP growth and investment in advanced countries have declined in tandem. This slowdown was not the result of weak demand (there has been no shift along the Okun curve), but of a decline in potential output growth (which has shifted the Okun curve to the left). We analyze what happens if central banks mistakenly diagnose the problem as insufficient demand, when it is actually a supply problem. We do this in a real model, in which inflation is not an issue. We show that aggressive central bank action may revive gross investment, but it will not revive net investment or growth. Moreover, low interest rates will lead to an increase in the capital output ratio, a low return on capital and high leverage. We show that these forecasts are in line with what has happened in major advanced countries.
{"title":"What Happens If Central Banks Misdiagnose a Slowdown in Potential Output","authors":"B. Bakker","doi":"10.5089/9781513512532.001","DOIUrl":"https://doi.org/10.5089/9781513512532.001","url":null,"abstract":"In the last few decades, real GDP growth and investment in advanced countries have declined in tandem. This slowdown was not the result of weak demand (there has been no shift along the Okun curve), but of a decline in potential output growth (which has shifted the Okun curve to the left). We analyze what happens if central banks mistakenly diagnose the problem as insufficient demand, when it is actually a supply problem. We do this in a real model, in which inflation is not an issue. We show that aggressive central bank action may revive gross investment, but it will not revive net investment or growth. Moreover, low interest rates will lead to an increase in the capital output ratio, a low return on capital and high leverage. We show that these forecasts are in line with what has happened in major advanced countries.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130549209","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}
Monetary policy has fiscal implications that are especially pronounced at the zero lower bound. Independent central banks in advanced economies have considerable leeway to ease fiscal pressures faced by governments without compromising price stability. They also have the power to create unnecessary fiscal problems. A fiscal squeeze can serve as an incentive against a “misbehaving” government that appears reluctant to adopt the structural reforms that, in the central bank’s view, may be in the long-term interest of a country. Validating default fears and high risk premiums on government debt can be a potent tool to discourage what the central bank perceives as “moral hazard.” At times, independent central banks may be tempted to step outside their mandate and use their considerable discretionary authority to achieve what they perceive as better economic outcomes. How should this authority be used? Are the limits of democratic legitimacy respected? Comparing the recent policy records of the Bank of Japan and the European Central Bank suggests that independent central banks have not always managed to balance the inevitable tensions satisfactorily.
货币政策对财政的影响在零下限时尤为明显。发达经济体的独立央行有相当大的回旋余地，可以在不损害价格稳定的情况下缓解政府面临的财政压力。他们也有能力制造不必要的财政问题。财政紧缩可以作为对“行为不端的”政府的一种激励，因为政府似乎不愿采取结构性改革，而在央行看来，结构性改革可能符合一个国家的长期利益。证实对违约的担忧和政府债务的高风险溢价可能是阻止央行所认为的“道德风险”的有力工具。有时，独立的央行可能会试图超越自己的职责，利用其相当大的自由裁量权来实现他们认为更好的经济结果。应该如何使用这种权力?民主合法性的界限得到尊重了吗?比较日本央行(Bank of Japan)和欧洲央行(ecb)近期的政策记录可以发现，独立央行并非总能令人满意地平衡不可避免的紧张关系。
{"title":"Independent Central Banks and the Interplay between Monetary and Fiscal Policy","authors":"Athanasios Orphanides","doi":"10.2139/ssrn.3076183","DOIUrl":"https://doi.org/10.2139/ssrn.3076183","url":null,"abstract":"Monetary policy has fiscal implications that are especially pronounced at the zero lower bound. Independent central banks in advanced economies have considerable leeway to ease fiscal pressures faced by governments without compromising price stability. They also have the power to create unnecessary fiscal problems. A fiscal squeeze can serve as an incentive against a “misbehaving” government that appears reluctant to adopt the structural reforms that, in the central bank’s view, may be in the long-term interest of a country. Validating default fears and high risk premiums on government debt can be a potent tool to discourage what the central bank perceives as “moral hazard.” At times, independent central banks may be tempted to step outside their mandate and use their considerable discretionary authority to achieve what they perceive as better economic outcomes. How should this authority be used? Are the limits of democratic legitimacy respected? Comparing the recent policy records of the Bank of Japan and the European Central Bank suggests that independent central banks have not always managed to balance the inevitable tensions satisfactorily.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116791195","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 prospect of central banks issuing digital currency (CBDC) immediately raises the question of how this new form of money should co-exist and interact with existing forms of money. This paper evaluates three different scenarios for the implementation of CBDC in terms of their monetary policy implications. In the ‘money user scenario’ CBDC co-exists with both cash and commercial bank deposits. In the ‘money manager scenario’ cash is abolished and CBDC co-exists only with commercial bank deposits. And in the ‘money maker scenario’ commercial bank deposits are abolished and CBDC co-exist only with cash. The evaluation is based on an adaption of the classical international monetary policy trilemma to a domestic monetary system with multiple forms of money. Our proposition is that a monetary system with two competing money creators, the central bank and the commercial banking sector, can simultaneously only pursue two out of the following three policy objectives: Free convertibility between CBDC and bank money, parity between CBDC and bank money, and central bank monetary sovereignty, which is the use of monetary policy for anything else than support for commercial bank credit creation. This means that the decision on the design of a monetary system with CBDC implies a crucial political decision on the priorities of the central bank.
{"title":"Designing New Money - The Policy Trilemma of Central Bank Digital Currency","authors":"Ole Bjerg","doi":"10.2139/ssrn.2985381","DOIUrl":"https://doi.org/10.2139/ssrn.2985381","url":null,"abstract":"The prospect of central banks issuing digital currency (CBDC) immediately raises the question of how this new form of money should co-exist and interact with existing forms of money. This paper evaluates three different scenarios for the implementation of CBDC in terms of their monetary policy implications. In the ‘money user scenario’ CBDC co-exists with both cash and commercial bank deposits. In the ‘money manager scenario’ cash is abolished and CBDC co-exists only with commercial bank deposits. And in the ‘money maker scenario’ commercial bank deposits are abolished and CBDC co-exist only with cash. The evaluation is based on an adaption of the classical international monetary policy trilemma to a domestic monetary system with multiple forms of money. Our proposition is that a monetary system with two competing money creators, the central bank and the commercial banking sector, can simultaneously only pursue two out of the following three policy objectives: Free convertibility between CBDC and bank money, parity between CBDC and bank money, and central bank monetary sovereignty, which is the use of monetary policy for anything else than support for commercial bank credit creation. This means that the decision on the design of a monetary system with CBDC implies a crucial political decision on the priorities of the central bank.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127465291","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}
Settlement risk is a critical concern in all financial markets and especially so in foreign exchange markets where it poses the threat of complete loss. In this paper, we offer a historical look at how risk mitigation in FX settlement has developed over time. We rely on two surveys conducted by the BIS in 1997 and 2007 and a new survey conducted by CLS Bank in April 2013. Based on our review of the evidence, we find that the market has achieved significant progress in both developing and implementing techniques that have dramatically reduced exposure to FX settlement risk. The share of FX turnover settled by means of traditional correspondent bank arrangements has declined from 85% to 32% to 13% across the three surveys. CLS Bank which offers payment-versus-payment (PVP) settlement and virtually eliminates settlement risk now settles roughly half of all FX turnover. However, because of enormous growth in FX turnover, particularly in emerging market currencies where access to risk mitigation alternatives is less prevalent, the absolute value of FX turnover exposed to settlement risk remains large. Surprisingly, one-quarter of FX turnover in currencies eligible for PVP settlement using CLS Bank still relies on bilateral settlement with some exposure to settlement risk. These findings support the need for banks, industry groups and central banks to remain vigilant and continue their efforts to incentivize PVP settlement positively, making it widely available and utilized, or finding alternative risk mitigating solutions. We offer various approaches to deal with the remaining settlement risk.
{"title":"Settlement Risk in the Global FX Market: How Much Remains?","authors":"D. Kos, Richard M. Levich","doi":"10.2139/ssrn.2827530","DOIUrl":"https://doi.org/10.2139/ssrn.2827530","url":null,"abstract":"Settlement risk is a critical concern in all financial markets and especially so in foreign exchange markets where it poses the threat of complete loss. In this paper, we offer a historical look at how risk mitigation in FX settlement has developed over time. We rely on two surveys conducted by the BIS in 1997 and 2007 and a new survey conducted by CLS Bank in April 2013. Based on our review of the evidence, we find that the market has achieved significant progress in both developing and implementing techniques that have dramatically reduced exposure to FX settlement risk. The share of FX turnover settled by means of traditional correspondent bank arrangements has declined from 85% to 32% to 13% across the three surveys. CLS Bank which offers payment-versus-payment (PVP) settlement and virtually eliminates settlement risk now settles roughly half of all FX turnover. However, because of enormous growth in FX turnover, particularly in emerging market currencies where access to risk mitigation alternatives is less prevalent, the absolute value of FX turnover exposed to settlement risk remains large. Surprisingly, one-quarter of FX turnover in currencies eligible for PVP settlement using CLS Bank still relies on bilateral settlement with some exposure to settlement risk. These findings support the need for banks, industry groups and central banks to remain vigilant and continue their efforts to incentivize PVP settlement positively, making it widely available and utilized, or finding alternative risk mitigating solutions. We offer various approaches to deal with the remaining settlement risk.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-10-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133015792","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}
A. Garcia-Herrero, E. Girardin, Arnoldo Lopez Marmolejo
Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico's communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit. In this paper, we tackle this issue empirically by using our own index of the tone of communication based on Banco de Mexico's speeches and statements and find that money markets do not only listen but they also understand the stance of monetary policy conveyed in the central bank's words. Regarding the ability to listen, first, we find that both the volatility and volume in the money market rates change right after communication from Banco de Mexico's governing body. As for the markets' understanding, we find a statistically significant rise in money market interbank rates the more hawkish communication is. All in all, our results show strong evidence of effective oral and written communication from the Central Bank towards Mexico's money markets.
{"title":"Mexico's Monetary Policy Communication and Money Markets","authors":"A. Garcia-Herrero, E. Girardin, Arnoldo Lopez Marmolejo","doi":"10.2139/ssrn.3160530","DOIUrl":"https://doi.org/10.2139/ssrn.3160530","url":null,"abstract":"Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico's communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit. In this paper, we tackle this issue empirically by using our own index of the tone of communication based on Banco de Mexico's speeches and statements and find that money markets do not only listen but they also understand the stance of monetary policy conveyed in the central bank's words. Regarding the ability to listen, first, we find that both the volatility and volume in the money market rates change right after communication from Banco de Mexico's governing body. As for the markets' understanding, we find a statistically significant rise in money market interbank rates the more hawkish communication is. All in all, our results show strong evidence of effective oral and written communication from the Central Bank towards Mexico's money markets.","PeriodicalId":436944,"journal":{"name":"PSN: Central Banking & Reserves (Topic)","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124427351","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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