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Record ID
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670
[ Page 3 of 68, No. 1 ]
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Date
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2016-11 |
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Author
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Bhattarai, Saroj; and Neely, Christopher J.
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Affiliation
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University of Texas at Austin and Federal Reserve Bank of St. Louis |
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Title
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A Survey of the Empirical Literature on U.S. Unconventional Monetary Policy |
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Summary /
Abstract
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This paper reviews and critically evaluates the empirical literature on the effects of U.S. unconventional monetary policy on both financial markets and the real economy. In order to understand how such policies could work, we also briefly review the literature on the theory of such policies. We show that event studies provide very strong evidence that U.S. unconventional policy announcements have strongly influenced international bond yields, exchange rates, and equity prices in the desired manner. In addition, such studies indicate that such policies curtailed market perceptions of extreme events. Calibrated modeling and vector autoregressive (VAR) exercises strongly suggest that these policies significantly improved macroeconomic outcomes, raising U.S. GDP and CPI, through these changes in asset prices. Both event studies and VARs imply positive international spillovers of such policies. |
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Keywords
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Quantitative easing; event study; unconventional monetary policy; zero lower bound |
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URL
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https://research.stlouisfed.org/wp/2016/2016-021.pdf
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Record ID
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669
[ Page 3 of 68, No. 2 ]
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Date
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2016-09 |
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Author
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Maurice Obstfeld, Kevin Clinton, Ondra Kamenik, Douglas Laxton, Yulia Ustyugova, and Hou Wang
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Affiliation
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Research and Western Hemisphere Departments, IMF |
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Title
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How to Improve Inflation Targeting in Canada |
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Summary /
Abstract
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Routine publication of the forecast path for the policy interest rate (i.e. “conventional forward guidance†) would improve the transparency of monetary policy. It would also improve policy effectiveness through its influence on expectations, particularly when there is a risk of low inflation, and the policy rate is constrained by the effective lower bound. Model simulations indicate that a potent macroeconomic strategy, for returning the Canadian economy to potential, combines conventional forward guidance with a fiscal stimulus. As a response to the effective lower bound constraint, and the decline in the world equilibrium real interest rate, this strategy is preferable to raising the inflation target. |
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Keywords
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Canada; inflation targeting; monetary policy; fiscal policy |
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URL
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http://www.imf.org/external/pubs/ft/wp/2016/wp16192.pdf
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Record ID
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668
[ Page 3 of 68, No. 3 ]
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Date
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2016-10 |
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Author
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Philip Turner
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Affiliation
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Bank for International Settlements |
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Title
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Macroprudential policies, the long-term interest rate and the exchange rate |
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Summary /
Abstract
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The Bernanke-Blinder closed economy model suggests that macroprudential policies aimed at bank lending will affect the domestic long-term interest rate. In an open economy, domestic shocks to long-term rates are likely to influence capital flows and the exchange rate. Currency movements feed back into domestic credit through several channels, which will be influenced by balance sheet positions and not only by income flows. Macroprudential policies aimed at domestic credit and at foreign currency borrowing may be the best option open to small countries facing very low global interest rates and risky domestic credit expansion. |
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Keywords
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Bernanke-Blinder model, capital flows, interest rate policy, macroprudential policy |
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URL
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http://www.bis.org/publ/work588.pdf
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Record ID
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667
[ Page 3 of 68, No. 4 ]
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Date
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2016-10 |
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Author
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Pierluigi Bologna and Anatoli Segura
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Affiliation
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Bank of Italy |
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Title
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Integrating stress tests within the Basel III capital framework: a macroprudentially coherent approach |
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Summary /
Abstract
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In the post-crisis era banks’ capital adequacy is established by the Basel III capital standards and, in many jurisdictions, also by supervisory stress tests. In this paper we first describe the ways in which supervisory stress tests can supplement the risk-based capital framework of Basel III and how this could be codified with a stress test buffer. We then argue that in order to ensure coherence with the macroprudential objectives of Basel III, the severity of supervisory stress tests should be procyclical. In addition, to increase the transparency and predictability of the overall capital framework, severity choices should follow a constrained discretion approach based on a simple rule. Finally, we analyze supervisory stress testing practices across some jurisdictions and find that while the United States and the UK frameworks are in line with some of the elements of our proposal, including most notably the need for procyclical severity, this is not the case in the euro area. |
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Keywords
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Stress test, capital regulation, macroprudential policy |
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URL
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http://www.bancaditalia.it/pubblicazioni/qef/2016-0360/QEF_360_16.pdf
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Record ID
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666
[ Page 3 of 68, No. 5 ]
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Date
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2016-09 |
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Author
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Leonardo Gambacorta and Sudipto Karmakar
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Affiliation
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Monetary and Economic Department, BIS |
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Title
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Leverage and Risk Weighted Capital Requirements |
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Summary /
Abstract
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The global financial crisis has highlighted the limitations of risk-sensitive bank capital ratios. To tackle this problem, the Basel III regulatory framework has introduced a minimum leverage ratio, defined as a banks Tier 1 capital over an exposure measure, which is independent of risk assessment. Using a medium sized DSGE model that features a banking sector, financial frictions and various economic agents with differing degrees of creditworthiness, we seek to answer three questions: 1) How does the leverage ratio behave over the cycle compared with the risk-weighted asset ratio? 2) What are the costs and the benefits of introducing a leverage ratio, in terms of the levels and volatilities of some key macro variables of interest? 3) What can we learn about the interaction of the two regulatory ratios in the long run? The main answers are the following: 1) The leverage ratio acts as a backstop to the risk-sensitive capital requirement: it is a tight constraint during a boom and a soft constraint in a bust; 2) the net benefits of introducing the leverage ratio could be substantial; 3) the steady state value of the regulatory minima for the two ratios strongly depends on the riskiness and the composition of bank lending portfolios. |
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Keywords
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Bank capital buffers, regulation, risk-weighted assets, leverage |
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URL
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http://www.bis.org/publ/work586.pdf
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Record ID
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665
[ Page 3 of 68, No. 6 ]
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Date
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2015-12 |
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Author
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Jiaqian Chen and Francesco Columba
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Affiliation
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IMF and Bank of Italy |
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Title
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Macroprudential and Monetary Policies Interactions in a DSGE Model for Sweden |
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Summary /
Abstract
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We analyse the effects and the interactions of macroprudential and monetary policies with an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households are constrained by a loan-to-value ratio and mortgages are amortized. Government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that to curb the household debt-to-income ratio demand-side macroprudential measures are more effective and less costly in terms of foregone consumption than monetary policy. A tighter macroprudential stance is also welfare improving, by promoting lower consumption volatility in response to shock, especially when combining different instruments, whose sequence of implementation is key. |
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Keywords
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Macroprudential Policies, Monetary Policy, Collateral Constraints |
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URL
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https://economicdynamics.org/meetpapers/2016/paper_913.pdf
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Record ID
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664
[ Page 3 of 68, No. 7 ]
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Date
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2016-10 |
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Author
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Joshua Aizenman, Menzie D. Chinn, and Hiro Ito
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Affiliation
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National Bureau of Economic Research |
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Title
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Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20 |
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Summary /
Abstract
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We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al. (2016)), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets’ crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S. |
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Keywords
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East Asian Crisis Plus 20, Monetary and Financial Spillovers |
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URL
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http://www.nber.org/papers/w22737.pdf
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Record ID
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663
[ Page 3 of 68, No. 8 ]
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Date
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2016-10 |
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Author
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Alan S. Blinder, Michael Ehrmann, Jakob de Haan, and David-Jan Jansen
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Affiliation
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National Bureau of Economic Research |
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Title
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Necessity as the Mother of Invention: Monetary Policy after the Crisis |
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Summary /
Abstract
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We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys—one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly—for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, we expect central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks’ tool-kits, as governors who gain experience with a particular tool are more likely to assess that tool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks “crossing the line” more often than in the past. |
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Keywords
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Global financial crisis, monetary policy, unconventional monetary tools, macro-prudential tools, crisis vs. non-crisis countries |
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URL
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http://www.nber.org/papers/w22735.pdf
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Record ID
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662
[ Page 3 of 68, No. 9 ]
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Date
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2016-09 |
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Author
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Simona Malovana and Jan Frait
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Affiliation
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Czech National Bank |
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Title
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Monetary Policy and Macro-Prudential Policy: Rivals or Teammates? |
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Summary /
Abstract
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This paper sheds some light on situations in which monetary and macro-prudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas. |
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Keywords
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Bayesian estimation, financial stability, macroprudential policy, monetary policy, time-varying panel VAR model |
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URL
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http://www.cnb.cz/miranda2/export/sites/www.cnb.cz/en/research/research_publications/cnb_wp/download/cnbwp_2016_06.pdf
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