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on Central Banking |
| By: | Bonga-Bonga, Lumengo |
| Abstract: | This paper assesses how inflation reacts to monetary policy shocks in South Africa during the inflation targeting period by making use of the structural vector error correction model (SVECM). The results of the impulse response function obtained from the SVECM show that, on average, contractionary monetary policy that intends to curb inflationary pressure has been impotent in South Africa. However, the contractionary monetary policy shocks managed to reduce output. The paper suggests that it is time a dual target, inflation and output, be considered in South Africa to avoid the harm caused on output growth from monetary policy actions related to the constraint of inflation targeting. |
| Keywords: | inflation targeting policy, structural vector error correction model, South Africa |
| JEL: | C50 E52 E58 |
| Date: | 2017–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80794&r=cba |
| By: | Massimiliano Caporin (University of Padova); Gisle J. Natvik (BI Norwegian Business School); Francesco Ravazzolo (Free University of Bozen-Bolzano and BI Norwegian Business School); Paolo Santucci de Magistris (Aarhus University and CREATES) |
| Abstract: | We explore the interplay between sovereign and bank credit risk in a setting where Danish authorities first let two Danish banks default rather than bail them out and then left the country's largest bank, Danske Bank, to recapitalize privately. We find that the correlation between bank and sovereign credit default swap (CDS) rates changed with these events, indicating that the non-bailout decisions and recapitalization helped to curb the feedback loop between bank and sovereign risk. Following the non-bailout events, the sensitivity to external shocks declined both for Danske Bank and for Danish sovereign debt, as measured by their CDS connection with CDS rates on the European banking sector. After Danske Bank was recapitalized, its exposure to the European banking sector reappeared, while that did not happen for Danish sovereign debt. This decoupling between CDS rates on sovereign and private bank debt indicates that the non-bailout policies succeeded in breaking the vicious circle generated by the risks on the bank and sovereign debts. Our results are reinforced by the use of an indirect testing approach and by focusing on CDS-quantiles. |
| Keywords: | Bailout expectation, risk, CDS, spillover, quantile regression |
| JEL: | C21 G12 G21 G28 |
| Date: | 2017–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2017-25&r=cba |
| By: | Deli, Yota D.; Hasan, Iftekhar |
| Abstract: | We examine the effect of the full set of bank capital regulations (capital stringency) on loan growth, using bank-level data for a maximum of 125 countries over the period 1998-2011. Contrary to standard theoretical considerations, we find that overall capital stringency only has a weak negative effect on loan growth. In fact, this effect is completely offset if banks hold moderately high levels of capital. Interestingly, the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities. In contrast, compliance with Basel guidelines in using Basel- and credit-risk weights has a much less potent effect on loan growth. |
| JEL: | G21 G28 E6 O4 |
| Date: | 2017–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2017_023&r=cba |
| By: | Gerko, Elena; Rey, Hélène |
| Abstract: | The importance of financial markets and international capital flows has increased greatly since the 1990s. How does this affect the effectiveness of monetary policy? We analyse the transmission of monetary policy in two important financial centres, the United States and the United Kingdom. Studying the responses of mortgage and corporate spreads, we find evidence in favour of an important financial channel in both countries. Our identification strategy allows us to study effects of the policy rate and of forward guidance, broadly defined. We also analyse international financial spillovers, which we find to be asymmetric. |
| Keywords: | high frequency identification; international financial spillovers; monetary policy |
| JEL: | E4 E52 E58 F41 G15 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12217&r=cba |
| By: | Marcio M. Janot; Márcio G. P. Garcia |
| Abstract: | Since the mid 1990s, theories of speculative attacks have argued that fixed exchange rate regimes induce excessive borrowing in foreign currency as an optimal response to implicit guarantes that the government will not devalue the domestic currency. Using data on Brazilian firms before and after the end of the fixed exchange rate regime in 1999, we estimate the relevance of the implicit guarantees by comparing the changes in foreign debt of two groups of firms: those that hedged their foreign currency debt prior to the exchange rate float and those that did not. Using the difference-in-differences approach, in which firm-specific characteristics are introduced as control variables, we exclude macroeconomic effects of the change in the exchange rate regime and possible differences in foreign debt trends of the two groups of firms, thus obtaining an estimate of the impact of the implicit guarantees on borrowing in foreign currency. The results suggest that the implicit guarantees do not induce excessive borrowing in foreign currency |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:459&r=cba |
| By: | John Kandrac; Bernd Schlusche |
| Abstract: | In this paper, we exploit a natural experiment in which thrifts in several states witnessed an exogenous reduction in supervisory attention to assess the effect of supervision on financial institutions' willingness to take risk. We show that the affected institutions took on much more risk than their unaffected counterparts in other districts that were subject to identical regulations. Subsequent to the emergency enlistment of examiners and supervisors from other parts of the country two years later, additional risk taking by the affected thrifts ceased. We find that the expansion in risk taking resulted in a higher incidence of failure as well as more costly failures. None of these patterns are present in commercial banks subject to a different primary supervisory agent but otherwise similar to the thrifts in our sample. |
| Keywords: | S&L crisis ; Bank supervision ; Lending ; Resolution costs ; Risk taking |
| JEL: | G01 G21 G28 |
| Date: | 2017–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-79&r=cba |
| By: | Matteo Crosignani |
| Abstract: | I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of domestic government bonds, lowering sovereign yields and supporting the home sovereign debt capacity. The model rationalizes, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit supply, and the prolonged fragility of the financial sector. |
| Keywords: | Bank Capital ; Bank Credit ; Government Bonds ; Risk-Shifting ; Sovereign Crises |
| JEL: | E44 F33 G21 G28 |
| Date: | 2017–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-84&r=cba |
| By: | Jair N. Ojeda-Joya (Banco de la República de Colombia); Oscar E. Guzman (Contraloría de la República) |
| Abstract: | In this paper we estimate the effect of government consumption shocks on GDP using a panel of 21 developing economies. Our goal is to better understand the reasons for the low fiscal multipliers found in the literature by performing estimations for alternative exchange rate regimes, business-cycle phases, and monetary policy stances. In addition, we perform counterfactual simulations to analyze the possible gains from fiscal-monetary policy coordination. The results imply that government consumption shocks are usually followed by monetary policy tightening in developing economies with flexible regimes. Our simulations show that this reaction partially explains the presence of low fiscal multipliers in these economies. Government consumption shocks imply lower multipliers in developing economies during flexible regimes, economic slowdowns or monetary contractions. In addition, implementing fiscal programs during monetary expansions seems to improve significantly their economic stimulus. Classification JEL: E62, E63, F32 |
| Keywords: | Fiscal Policy, Monetary Policy, Structural Vector Autoregression, Exchange Rate Regime, Panel VAR |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1010&r=cba |