Author: Marc-Antoine Ramelet Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation investigates the transmission and effects of monetary policy. The conduct of monetary policy is often categorized into conventional and unconventional measures. The first and second chapters assess the effectiveness and distributional consequences of an extensively-used unconventional measure, namely asset purchase programmes. By contrast, the third chapter documents the transmission of conventional monetary policy to heterogeneous households. The first chapter analyzes the transmission of central bank asset purchase programmes (so-called quantitative easing measures, QE). To do so, I embed a corporate credit market imperfection in a New Keynesian model. The transmission is different than that of conventional policy: it operates via investment instead of private consumption. Importantly, QE is equally effective at the zero lower bound. My setting hence provides support to the usefulness of QE as a policy instrument when conventional measures become impotent. Estimating the model with US data, I show that the QE measures carried out in the US had large and persistent accommodating aggregate effects. The second chapter assesses some of the distributional consequences of central bank asset purchases. To this end, I nest the above credit friction in a model which contains rich household heterogeneity. While central bank purchases overall improve labor market conditions, the corresponding welfare gains vary considerably at the individual level. Younger households benefit the most from improved employment prospects. Because the gains are mostly driven by improved employment prospects, both the employed and the unemployed experience a similar increase in welfare. The gains obtained by older households instead rely on accumulated wealth and are therefore more sensitive to the ex-post employment path. In particular, households who face unemployment spells closer to retirement benefit the least. The third chapter p.
Author: Katharina Bergant Publisher: International Monetary Fund ISBN: 1513529234 Category : Business & Economics Languages : en Pages : 46
Book Description
We analyse euro area investors' portfolio rebalancing during the ECB's Asset Purchase Programme at the security level. Our empirical analysis shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme and other euro-denominated debt securities, towards foreign debt instruments, including `closest substitutes', i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. Our analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts.
Author: Ciaran James Rogers Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation consists of three essays that examine the effects of different monetary policy tools on the the real economy and asset prices. In Chapter 1, I study the transmission of central bank asset purchases into the real economy of the Euro Area, while Chapter 2 instead focuses on the effect of more conventional interest rate policy on asset prices and risk premia. Chapter 3 demonstrates how the pass-through of more conventional policy rate changes depends on the monetary policy framework of the central bank. In the first chapter, I study the role of local banking systems in the propagation of ECB Quantitative Easing (QE) programs. I firstly document that local deposit markets are fragmented across country lines, but the assets held by banks backing the deposits are in more integrated markets. I then consider a multi-country New Keynesian model with heterogeneous banking sectors but common monetary policy. All banks can access collateral from the same union-wide asset market, using them to back liquid deposit liabilities that are issued locally. QE has real effects if it increases the quantity or quality of collateral available to the banking sector. I find that QE has a powerful effect across the currency union, raising output and inflation by 62bps and 60bps, respectively. The pass-through is very similar across countries, despite fragmented deposit markets, as all banks face the same reduction in the cost of collateral from the union-wide asset market. The overall impact increases significantly if the beginning of QE coincides with adjusting the policy rate rule to be a weaker counteracting force by making it less responsive to inflation. In the second chapter, co-authored with Matteo Leombroni, we study the role of the household portfolio rebalancing channel for the aggregate and redistributive effects of monetary policy. The transmission of monetary policy works not only through the usual income and substitution motives, but also through an endogenous portfolio rebalancing effect that generates changes in equilibrium asset prices and a consequent wealth effect on consumption. We introduce a heterogeneous household life-cycle model with multiple assets and combine it with an incomplete markets asset pricing framework. We model monetary policy shocks as a reduction in the expected return on safe assets. In equilibrium, the reduction in bonds investment prompts a portfolio rebalancing toward riskier assets, inducing an increase in asset prices and wealth. We find that, absent wealth effects, older cohorts reduce consumption as they face lower expected asset returns, while younger cohorts raise consumption as they can borrow more cheaply. This heterogeneity remains with wealth effects, but responses turn positive for all cohorts. Asset risk premia rise because the risk compensation effect (need for more returns to hold more risk) dominates the risk tolerance effect (positive wealth effect on risky asset holdings). Shutting down household heterogeneity flips the risk premia responses negative. In the third chapter, co-authored with Monika Piazzesi and Martin Schneider, we study a New Keynesian model with a banking system. The central bank targets the interest rate on short safe bonds that are held by banks to back inside money and hence earn convenience yield for their safety or liquidity. Central bank operating procedures matter. In a floor system, the reserve rate and the quantity of reserves are independent policy tools that affect banks' cost of safety. In a corridor system, increasing the interbank rate by making reserves scarce increases banks' cost of liquidity and generates strong pass-through to other rates of return, output and inflation. In either system, policy rules that do not respond aggressively to inflation -- such as an interest rate peg -- need not lead to self-fulfilling fluctuations. The stabilizing effect from an endogenous convenience yield is stronger when there are more nominal rigidities in bank balance sheets.
Author: Peter J. N. Sinclair Publisher: Routledge ISBN: 1135179778 Category : Business & Economics Languages : en Pages : 402
Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: Andreas Jobst Publisher: International Monetary Fund ISBN: 1475524471 Category : Business & Economics Languages : en Pages : 48
Book Description
More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.
Author: Margherita Bottero Publisher: International Monetary Fund ISBN: 1498300855 Category : Business & Economics Languages : en Pages : 59
Book Description
We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.
Author: Mr.Olivier Coibion Publisher: International Monetary Fund ISBN: 1475505493 Category : Business & Economics Languages : en Pages : 57
Book Description
We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
Author: William Arrata Publisher: International Monetary Fund ISBN: 1484386914 Category : Business & Economics Languages : en Pages : 45
Book Description
Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks’ excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we explore empirically the interactions between the PSPP and repo rates. We document different channels through which asset purchases may affect them. Using proprietary data from PSPP purchases and repo transactions for specific (“special") securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1 percent of a bond outstanding is associated with a decline of its repo rate of 0.78 bps. Using an instrumental variable, we find that the full effect may be up to six times higher.
Author: Mr.Jochen R. Andritzky Publisher: International Monetary Fund ISBN: 1475570058 Category : Business & Economics Languages : en Pages : 30
Book Description
This paper introduces a new dataset on the composition of the investor base for government securities in the G20 advanced economies and the euro area. During the last decades, investors from abroad have increased their presence in government bond markets. The financial crisis broke this trend. Domestic financial institutions allocated a larger share of government securities in their portfolios, as Japan has done since its crisis in the 1990s. Increases in the share held by institutional investors or non-residents by 10 percentage points are associated with a reduction in yields by about 25 or 40 basis points, respectively. The data show a varied lead-lag relationship between bond yields and investor holdings. Portfolio balance estimates suggest that a change in statutory or regulatory holdings of government securities to the tune of 10 percent of the outstanding stock causes expected returns to decline by 7 to 25 basis points.
Author: Marc-Antoine Ramelet
Author: Andrew Lee Smith
Author: Katharina Bergant
Author: Ciaran James Rogers
Author: Peter J. N. Sinclair
Author: Andreas Jobst
Author: Margherita Bottero
Author: Mr.Olivier Coibion
Author: William Arrata
Author: Mr.Jochen R. Andritzky