Three Essays on Unconventional Monetary Policy, Credit Supply and Investment PDF Download

Author: Konrad Kuhmann
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Englische Version: This thesis contains three essays, which study the transmission of changes in credit supply to investment, focusing on the role of firm heterogeneity and financial frictions. The first essay theoretically investigates the role of default risk heterogeneity for the transmission of unconventional monetary policy. Specifically, I consider the effects of policies expanding the supply of credit (credit policy) in the context of a Two-Agent New-Keynesian model with financial frictions. In this model with firm heterogeneity, the effectiveness of credit policy is reduced compared to a representative firm model. Moreover, credit policy is most effective when targeted at firms that are relatively less affected by financial constraints. The second essay features a detailed empirical analysis of the firm-level effects of credit supply shocks. Using a panel local-projections analysis, I show that there is pronounced heterogeneity and asymmetry in the investment effects of these shocks. I also document that asymmetry in investment responses is not driven by differences in the strength of second round amplification effects via firm-level borrowing constraints. In the third essay, I construct a partial equilibrium model to rationalize these empirical findings. In this model, occasionally binding constraints of financial intermediaries give rise to asymmetry in the effects of credit supply shocks. Interpreted in the context of the partial equilibrium model, my empirical findings indicate that constraints of financial intermediaries are crucial for the transmission of credit supply shocks. This may have implications for the aggregate and distributional consequences of credit policy.

Author: Karl David Boulware
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 177

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This dissertation is composed of three essays that measure the impact of monetary policy on non-bank credit activity by issuer, composition, and duration. The first essay measures the dynamic impact of monetary policy on gross repurchase agreement activity of primary government dealers of the Federal Reserve System. The second essay measures the dynamic impact of monetary policy on commercial paper activity. The third essay measures the impact of monetary policy on issuers of asset-backed securities. In the first essay, we find a positive shock to the federal funds rate significantly affects the level of credit activity. In particular, repo arrangements longer than a day display persistent declines. By comparison, overnight financing increases after a delay. This implies that contractionary monetary policy shocks lead to maturity substitution in the repo market. Our findings show that credit activity in the repo market is more sensitive to monetary policy than previously reported in the literature. In the second essay, our measure of contractionary monetary policy shocks corresponds to a sharp decline in money market mutual fund assets. Though there is an increase in aggregate commercial paper volumes, the impact of monetary policy is stronger for issuers with less liquid balance sheets. Specifically, issuers of asset-backed paper and issuers with second tier credit ratings. Furthermore, there is evidence of a broad substitution towards shorter maturities, in particular for asset backed and nonfinancial paper. In the final essay, we find that an anticipated increase in the target for the federal funds rate impacts the behavior of ABS issuers. In particular, we find commercial paper issuance rises while bond issuance falls. Consequently, our results support the existence of a liquidity risk channel for monetary policy operating through the total supply of non-bank credit activity. In this manner, our findings indicate the monetary transmission mechanism contributes to systemic risk in the shadow banking system through rollover risk. As a result, non-bank credit activity is an important component of the relationship between monetary policy and financial stability.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Guilherme Batistella Martins
Publisher:
ISBN:
Category :
Languages : en
Pages :

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The model is general and appropriate to address several questions. We illustrate that by showing that it can replicate standard business cycle properties and to discuss conventional monetary policy in the context sudden stops, when the domestic banking system is often at the epicenter of the crisis. In Chapter 3, we first note that a number of recent theoretical papers show that margins can affect asset prices. Such results are important, for example, to understand the unconventional polices implemented by the Fed during the great recession of 2007-2010. However, empirical evidence is still scarce. We contribute to fill this gap. We show that an aggregate margin-related factor is able to predict future excess returns of the SP 500 and that stocks with high exposures to the cost of buying on margin pay on average higher returns.

Author: Mr.Jaromir Benes
Publisher: International Monetary Fund
ISBN: 1475505523
Category : Business & Economics
Languages : en
Pages : 71

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At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

Author: Natalya Martynova
Publisher: International Monetary Fund
ISBN: 1513517589
Category : Business & Economics
Languages : en
Pages : 44

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Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.

Author: Peter Conti-Brown
Publisher: Edward Elgar Publishing
ISBN: 1784719226
Category : Banks and banking, Central
Languages : en
Pages : 589

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Central banks occupy a unique space in their national governments and in the global economy. The study of central banking however, has too often been dominated by an abstract theoretical approach that fails to grasp central banks’ institutional nuances. This comprehensive and insightful Handbook, takes a wider angle on central banks and central banking, focusing on the institutions of central banking. By 'institutions', Peter Conti-Brown and Rosa Lastra refer to the laws, traditions, norms, and rules used to structure central bank organisations. The Research Handbook on Central Banking’s institutional approach is one of the most interdisciplinary efforts to consider its topic, and includes chapters from leading and rising central bankers, economists, lawyers, legal scholars, political scientists, historians, and others.

Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498342620
Category : Business & Economics
Languages : en
Pages : 45

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This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries

Author: El Bachir Boukherouaa
Publisher: International Monetary Fund
ISBN: 1589063953
Category : Business & Economics
Languages : en
Pages : 35

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This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

Author: Mr.Etibar Jafarov
Publisher: International Monetary Fund
ISBN: 151351248X
Category : Business & Economics
Languages : en
Pages : 66

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Financial repression (legal restrictions on interest rates, credit allocation, capital movements, and other financial operations) was widely used in the past but was largely abandoned in the liberalization wave of the 1990s, as widespread support for interventionist policies gave way to a renewed conception of government as an impartial referee. Financial repression has come back on the agenda with the surge in public debt in the wake of the Global Financial Crisis, and some countries have reintroduced administrative ceilings on interest rates. By distorting market incentives and signals, financial repression induces losses from inefficiency and rent-seeking that are not easily quantified. This study attempts to assess some of these losses by estimating the impact of financial repression on growth using an updated index of interest rate controls covering 90 countries over 45 years. The results suggest that financial repression poses a significant drag on growth, which could amount to 0.4-0.7 percentage points.