|
on Banking |
| By: | Maximilian Grimm (University of Bonn) |
| Abstract: | Does monetary policy affect funding vulnerabilities of the banking system? I show that contractionary monetary policy shocks cause an aggregate outflow of retail deposits and an inflow of non-core market-based funding. Using a newly constructed worldwide dataset covering the liability structure of banking systems at monthly frequency, I demonstrate that a growing reliance on wholesale funding is associated with increasing risks of financial instability and subsequent contractions in lending and real activity. I rationalize this effect of monetary policy on banks' funding structure and ultimately on financial stability risk in a model where profit-maximizing banks do not internalize the heightened systemic risk stemming from the rise of runnable debt in the system. This paper shows that monetary policy has direct consequences for financial stability by changing the liability structure of the banking sector. |
| Keywords: | Monetary policy, bank funding, banking fragility |
| JEL: | E44 E52 E58 G01 G21 N10 N20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:341 |
| By: | Bindseil, Ulrich; Marrazzo, Marco; Sauer, Stephan |
| Abstract: | As digital payments become increasingly popular, many central banks are looking into the issuance of retail central bank digital currency (CBDC) as a new central bank monetary liability in addition to banknotes and commercial bank reserves. CBDC will have broadly the same balance sheet and profit implications as the issuance of banknotes. While the decision to issue CBDC is often thought to likely increase the size of central banks’ balance sheets, the net impact of digitalisation on balance sheet size could also be negative, as the number of banknotes in circulation may decline and CBDC’s design features could limit its take-up as a store of value. We use scenario analyses to illustrate the key drivers of the impact of CBDC on central bank profitability, with the part of CBDC that does not derive from an exchange of banknotes being an important factor. The financial risk implications of CBDC for central banks can be managed via well-established frameworks and relate primarily to the impact on balance sheet size and asset composition. The paper concludes with a discussion on how the profit and risk channels affect central bank capital. JEL Classification: E58 |
| Keywords: | central bank capital, central bank digital currency, digital money, financial risk management, seigniorage |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2024360 |
| By: | Matteo Crosignani; Saketh Prazad |
| Abstract: | We show that banks “extended-and-pretended” their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility. We detect this behavior using loan-level supervisory data on maturity extensions, bank assessment of credit risk, and realized defaults for loans to property owners and REITs. Extend-and-pretend crowds out new credit provision, leading to a 4.8–5.3 percent drop in CRE mortgage origination since 2022:Q1 and fuels the amount of CRE mortgages maturing in the near term. As of 2023:Q4, this “maturity wall” represents 27 percent of bank capital. |
| Keywords: | commercial real estate; zombie lending; financial fragility; credit misallocation |
| JEL: | G21 E51 R33 |
| Date: | 2024–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99057 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Why do banks fail? In a new working paper, we study more than 5, 000 bank failures in the U.S. from 1865 to the present to understand whether failures are primarily caused by bank runs or by deteriorating solvency. In this first of three posts, we document that failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. Further, we find that problems in failing banks are often the consequence of rapid asset growth in the preceding decade. |
| Keywords: | financial crises; deposit insurance; bank runs; bank failures |
| JEL: | G21 |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99160 |
| By: | Sergio A. Correia; Stephan Luck; Emil Verner |
| Abstract: | Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities. |
| Keywords: | bank runs; financial crises; deposit insurance; bank failures |
| JEL: | G01 G2 |
| Date: | 2024–11–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99163 |
| By: | Qiang Wan; Jun Cui |
| Abstract: | This paper explores the impact of banking fintech on reducing financial risks in the agricultural supply chain, focusing on the secondary allocation of commercial credit. The study constructs a three-player evolutionary game model involving banks, core enterprises, and SMEs to analyze how fintech innovations, such as big data credit assessment, blockchain, and AI-driven risk evaluation, influence financial risks and access to credit. The findings reveal that banking fintech reduces financing costs and mitigates financial risks by improving transaction reliability, enhancing risk identification, and minimizing information asymmetry. By optimizing cooperation between banks, core enterprises, and SMEs, fintech solutions enhance the stability of the agricultural supply chain, contributing to rural revitalization goals and sustainable agricultural development. The study provides new theoretical insights and practical recommendations for improving agricultural finance systems and reducing financial risks. Keywords: banking fintech, agricultural supply chain, financial risk, commercial credit, SMEs, evolutionary game model, big data, blockchain, AI-driven risk evaluation. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.07604 |
| By: | Sugata Marjit; Pranab Kumar Das |
| Abstract: | The paper provides an analysis of the simultaneous existence of the formal and the informal sources of finance and their implications for the rate of growth in an economy. Our main result is that in the presence of two sources of borrowing, viz. formal banking sector with lower interest rate with finance constraint and an informal credit market with a higher interest rate but unlimited amount of availability of loans, the informal source may boost the rate of growth. Hence, without the informal source of finance easily the growth rate could have been lower. The premium associated with the differential interest rate in favour of the informal source unequivocally increases propensity towards investment. Thus higher interest rate in the informal source provides the incentive to save resources from from own production as banks do not lend beyond the quota. Thus, if diminishing returns do not impede marginal productivity too much, availability of informal credit must act as a growth stimulant. Thus the presence of informal credit market can be an effective catalyst for growth and development, contrary to what is generally perceived in the literature on financial inclusion. |
| Keywords: | finance, informal, growth |
| JEL: | G20 O40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11446 |
| By: | Yuan, Boning |
| Abstract: | Using panel data from 35 listed banks' annual reports and corporate social responsibility reports from 2009 to 2022 as a sample, this study empirically examines the impact of green credit on the performance of commercial banks and takes China Merchants Bank as the case analysis object. Based on the theory of green finance, this paper discusses the function mechanism of the effect of green credit on commercial banks by empirical method, heterogeneity analysis and robustness test. Then, using the specific business data of China Merchants Bank in the field of green credit and its business performance data, the paper further reveals the specific impact of green credit on the business performance of the bank. The research shows that commercial banks have improved their asset income ability through green credit, significantly enhanced their operating efficiency in social responsibility and risk control, and positively impacted the overall operating effect. Finally, this paper suggests that green credit can positively promote commercial banks' performance and point out a new path for the sustainable development and social responsibility of commercial banks. This research has not only contributed to theory but also provided important reference for practice. |
| Date: | 2024–11–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:xk6ew |
| By: | Zhiguo He; Jing Huang; Cecilia Parlatore |
| Abstract: | We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective (“soft”) information becomes more objective and concrete (“hard”). In a model with multidimensional fundamentals, two banks equipped with similar data processing systems possess hard signals about the borrower's hard fundamentals, and the specialized bank, who further interacts with the borrower, can also assess the borrower's soft fundamentals. Increasing the span of the hard information hardens soft information, enabling the data processing systems of both lenders to evaluate some of the borrower's soft fundamentals. We show that hardening soft information levels the playing field for the non-specialized bank by reducing its winner's curse. In contrast, increasing the precision or correlation of hard signals often strengthens the informational advantage of the specialized bank. |
| JEL: | G21 L13 L52 O33 O36 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33141 |
| By: | Schroeder, Christofer; Hviid, Simon Juul |
| Abstract: | Contractions in credit supply can lead firms to reduce their level of employment, yet little is known about how these shocks affect the composition of firms’ employees and outcomes at the worker level. This paper investigates how bank distress affects credit provision and its effects on employment beyond firm-level aggregates. To do so, we use a novel dataset built from administrative and tax records linking all banks, firms, and workers in Denmark. We show that banks that were particularly exposed to the 2008-09 financial crisis cut lending to firms, and firms were unable to fully compensate with financing from alternate sources. The decrease in credit supply led to a drop in firm-level employment, with effects concentrated among firms with low pre-crisis liquidity, and on employment of low-educated and nonmanagerial workers. At the worker level, we find that positive effects on unemployment were driven by effects on low-educated, non-managerial and short-tenured workers. Our estimates suggest that cuts in bank lending can account for at least 5% of the fall in employment of low-educated workers in our sample, and are an important factor behind heterogeneous employment dynamics in times of contractionary credit. JEL Classification: E24, E44, G01, G21, J23 |
| Keywords: | bank lending, financial crisis, firm borrowing, labour demand |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243001 |
| By: | Rohit Kumar; Sourabh Bikas Paul; Nikita Singh |
| Abstract: | We analyze the impact of the Reserve Bank of India's (RBI) monetary policy communications on Indian financial market from April 2014 to June 2024 using advanced natural language processing techniques. Employing BERTopic for topic modeling and a fine-tuned RoBERTa model for sentiment analysis, we assess how variations in sentiment across different economic topics affect the stock market. Our findings indicate that dovish sentiment generally leads to declines in equity markets, particularly in topics related to the interest rate policy framework and economic growth, suggesting that market participants interpret dovish language as signaling economic weakness rather than policy easing. Conversely, dovish sentiment regarding foreign exchange reserves management has a positive impact on equity market. These results highlight the importance of topic-specific communication strategies for central banks in emerging markets. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04808 |
| By: | Donghoon Lee; Daniel Mangrum; Wilbert Van der Klaauw; Crystal Wang |
| Abstract: | We examine the impact of financial education on credit decisions during COVID-19. The pandemic presented economic challenges, but policy responses provided opportunities for savvy borrowers. Using variation in state-mandated financial education during high school, we find that mandated borrowers reduced their credit card balances by larger amounts after stimulus checks were distributed and were more likely to buy homes and to refinance mortgages at low rates during the pandemic. The larger credit card balance reduction was driven by middle-income areas and subprime borrowers, while prime borrowers drove mortgage refinancing. Our findings underscore the importance of financial education for economic resilience. |
| Keywords: | financial education; high school curriculum; financial decision-making; household debt; COVID-19 pandemic |
| JEL: | D14 G51 G53 |
| Date: | 2024–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99058 |
| By: | Fascione, Luisa; Oosterhek, Koen; Scheubel, Beatrice; Stracca, Livio; Wildmann, Nadya |
| Abstract: | Since the March 2023 banking turmoil, a policy debate has emerged concerning the unprecedented scale and speed of the observed deposit outflows. Have recent stress episodes and developments in technology structurally changed depositors’ behaviour? Are the Basel III liquidity coverage ratio (LCR) run-off assumptions for cash outflows still fit for purpose? Leveraging on monthly liquidity reporting for a sample of 110 significant institutions (SIs) between 2016 and 2024, we shed light on some stylised facts pertaining to the composition of deposit flows in the banking union. Overall, we find limited evidence of a structural change in the statistical behaviour of deposit flows to date. For all but one of the deposit classes included in the analysis, more than 90% of observable net outflows remained below the LCR run-off assumptions during the whole sample period. Some extreme deposit outflows recorded during the COVID-19 pandemic and for a few SIs assessed as failing or likely to fail (FOLTF) remain rare tail events for which the LCR standard was not designed. JEL Classification: G20, G21, G28 |
| Keywords: | bank regulation, bank runs, deposit outflows, LCR run-off assumptions, liquidity risk |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2024361 |
| By: | Wonseong Kim; Choong Lyol Lee |
| Abstract: | This study explores the influence of FOMC sentiment on market expectations, focusing on cognitive differences between experts and non-experts. Using sentiment analysis of FOMC minutes, we integrate these insights into a bounded rationality model to examine the impact on inflation expectations. Results show that experts form more conservative expectations, anticipating FOMC stabilization actions, while non-experts react more directly to inflation concerns. A lead-lag analysis indicates that institutions adjust faster, though the gap with individual investors narrows in the short term. These findings highlight the need for tailored communication strategies to better align public expectations with policy goals. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04286 |
| By: | Jana S. Hamdan; Tim Kaiser; Lukas Menkhoff; Yuanwei Xu |
| Abstract: | We study the effects of scaling up a financial- and business education program in a randomized saturation experiment in Uganda. We randomly assign the program at the cluster-level, and then randomize the share of treated individuals within treated clusters. 15 months later, we find that treated entrepreneurs are more likely to use mobile money savings accounts and payments, increase their mobile money and bank savings at the intensive and extensive margins, and invest more. We find little evidence of spillovers on untreated peers, but as the share of treated entrepreneurs increases, beneficial effects on the treated decline. |
| Keywords: | scaling, business training, financial literacy, micro-entrepreneurs, mobile money, spillover effects, saturation effects |
| JEL: | C93 D14 G53 O12 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11431 |
| By: | Kamil Fortuna; Janusz Szwabi\'nski |
| Abstract: | The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent financial networks and the associated high systemic risk have been deemed the cause of the crashes. The goal of this paper is to enhance existing systemic risk analysis frameworks by incorporating essential debt valuation factors. Our results demonstrate that these additional elements substantially influence the outcomes of risk assessment. Notably, by modeling the dynamic relationship between interest rates and banks' credibility, our framework can detect potential cascading failures that standard approaches might miss. The proposed risk assessment methodology can help regulatory bodies prevent future failures, while also allowing companies to more accurately predict turmoil periods and strengthen their survivability during such events. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.10386 |
| By: | Jerry Jiang; Jacob P. Weber |
| Abstract: | We provide evidence that financial distress induces firms to sell their technology to foreign competitors. To do so, we construct a novel, spatial panel dataset by individually researching and locating U.S. firms who signed Technology Transfer Agreements (TTAs) with the Soviet Union during the 1920s and 1930s in various U.S. counties. By relating the number of TTAs signed in each county to the number of bank failures, we establish a significant, positive relationship between financial distress and the number of firms signing TTAs with the Soviet Union. Our findings suggest that banking panics may create opportunities for foreign countries to acquire affected firms’ technology. |
| Keywords: | Banking panic; technology assistance; know-how diffusion; industrialization; industrial policy |
| JEL: | G21 N6 O33 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99078 |
| By: | Bianka Biró (Government Debt Management Agency Pte. Ltd.); András Bebes (Government Debt Management Agency Pte. Ltd.); Richárd Farkas (Government Debt Management Agency Pte. Ltd.) |
| Abstract: | Retail financing was part of the Hungarian debt management framework even before the millennium but it only gained momentum after 2012. As FX debt reduction became a strategic goal of the economic policy after the Great Financial Crisis such as the financial inclusion of households, widening the retail investor base and boosting the sales of retail debt securities with competitive yields and higher publicity was an obvious choice. Currently, more than 20% of the Hungarian public debt is in household ownership, indicating the need for careful monitoring of retail debt and also different challenges as experienced in the previous years when, while combatting their impacts on the wholesale market and financing costs, the high inflation and interest rates rearranged the retail debt as well. This paper aims to present the evolution of the Hungarian retail debt programme, its importance in public debt financing and how the high inflation and interest rate environment affected the behavior of retail investors. Also, the paper assesses a what-if analysis that was conducted to estimate the real cost effect of the retail debt programme as it is often considered an expensive form of funding. |
| Keywords: | Public Debt, Retail Debt Programme, Household Assets, Inflation, AR model |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14716449 |
| By: | Sydow, Matthias; Fukker, Gábor; Dubiel-Teleszynski, Tomasz; Franch, Fabio; Gründl, Helmut; Miccio, Debora; Pellegrino, Michela; Gallet, Sébastien; Kotronis, Stelios; Schlütter, Sebastian; Sottocornola, Matteo |
| Abstract: | This paper documents the extension of the system-wide stress testing framework of the ECB with the insurance sector for a more thorough assessment of risks to financial stability. The special nature of insurers is captured by the modelling of the liability side and its loss absorbing capacity of technical provisions as the main novel feature of the model. Leveraging on highly granular data and information on bilateral exposures, we assess the impact of liquidity and solvency shocks and demonstrate how a combined endogenous reactions of banks, investment funds and insurance companies can further amplify losses in the financial system. The chosen hypothetical scenario and subsequent simulation results show that insurers’ ability to transfer losses to policyholders reduces losses for the entire financial sector. Furthermore, beyond a certain threshold, insurance companies play a crucial role in mitigating both direct and indirect contagion. JEL Classification: D85, G01, G21, G23, L14 |
| Keywords: | contagion, financial stability, fire sales, insurance companies, interconnectedness, stress test |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243000 |
| By: | Orkun Saka; Yuemei Ji; Clement Minaudier |
| Abstract: | We show that politicians facing a binding term limit are more likely to engage in financial de-liberalisation than those facing re-election, but only in the wake of a financial crisis. In particular, they implement policies that tend to favour incumbent financial institutions over the general population, such as increasing barriers to entry in the banking sector. We rationalise this behaviour with a theory of political accountability in which crises generate two opposite effects: they increase the salience of financial policies to voters but also create a window of opportunity for politicians captured by the financial industry to push potentially harmful reforms. In line with the implications of our model, we show that revolving doors between the government and the financial sector play a key role in encouraging bank-friendly policies after crises. |
| Keywords: | financial crises, political accountability, democracies, term-limits, special-interest groups |
| JEL: | D72 D78 G01 P11 P16 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11461 |
| By: | Lyuhong Wang; Jiawei Jiang; Yang Zhao |
| Abstract: | We introduce an innovative framework that leverages advanced big data techniques to analyze dynamic co-movement between stocks and their underlying fundamentals using high-frequency stock market data. Our method identifies leading co-movement stocks through four distinct regression models: Forecast Error Variance Decomposition, transaction volume-normalized FEVD, Granger causality test frequency, and Granger causality test days. Validated using Chinese banking sector stocks, our framework uncovers complex relationships between stock price co-movements and fundamental characteristics, demonstrating its robustness and wide applicability across various sectors and markets. This approach not only enhances our understanding of market dynamics but also provides actionable insights for investors and policymakers, helping to mitigate broader market volatilities and improve financial stability. Our model indicates that banks' influence on their peers is significantly affected by their wealth management business, interbank activities, equity multiplier, non-performing loans, regulatory requirements, and reserve requirement ratios. This aids in mitigating the impact of broader market volatilities and provides deep insights into the unique influence of banks within the financial ecosystem. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.03922 |
| By: | Philip Abradu-Otoo; Joseph K. Acquah; James Attuquaye; Simon Harvey; Francis Loloh; Shalva Mkhatrishvili; Valeriu Nalban; Daniel Ngoh; Victor Osei; Michael Quansah |
| Abstract: | The paper documents the latest extensions of the Bank of Ghana’s Quarterly Projection Model (QPM), used regularly to produce policy analysis and forecasts in support of the Bank’s policy processes. The decomposition of GDP allows to separate the agriculture and oil sectors, driven by exogenous and international developments, from non-agriculture non-oil activities, which are more relevant from the central bank’s perspective of assessing the business cycle position. Inter-sectoral price spillovers and their role in the formation of inflation expectations are explicitly accounted, with important policy implications. Specific model applications – including impulse response functions and simulations of shocks that affect agricultural production, e.g., those caused by climate disruptions; and counterfactual simulations to evaluate recent policy choices – highlight the usefulness of the extended QPM in providing a more detailed account of the economic developments, enhance forecast coverage, and broaden its underlying narrative, thus strengthening the BOG’s forward-looking policy framework. |
| Keywords: | Ghana; Forecasting and Policy Analysis; Quarterly Projection Model; Monetary Policy; Transmission Mechanism |
| Date: | 2024–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/237 |
| By: | Moritz Pfeifer; Gunther Schnabl |
| Abstract: | This paper investigates the relationship between economic divergence and expansionary monetary policies within the eurozone based on a new divergence indicator. We study the dynamics between the economic divergence of member states and unconventional monetary policy in a Bayesian SVAR and find a strong positive response of the expansion of the ECB’s balance sheet to rising divergence. We find weaker evidence for unconventional monetary policies lowering divergence. We interpret these findings as evidence that expansionary monetary policy aims to absorb shocks leading to divergence. However, it may exacerbate divergence and inflationary pressures in the long-run. This research contributes to the literature on Optimum Currency Areas (OCAs) by highlighting the dynamics between economic disparities and unconventional monetary policy. |
| Keywords: | optimum currency areas, unconventional monetary policy shocks, statistical identification |
| JEL: | E52 E58 F15 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11442 |
| By: | Evgenii Onishchuk; Maksim Dubovitskii; Eduard Horch |
| Abstract: | This empirical study presents the Decentralized Exchanges Comparison Service (DECS), a novel tool developed by 1inch Analytics to assess exchange efficiency in decentralized finance. The DECS utilizes swap transaction monitoring and simulation techniques to provide unbiased comparisons of swap rates across various DEXes and aggregators. Analysis of almost 1.2 million transactions across multiple blockchain networks demonstrates that both 1inch Classic and 1inch Fusion consistently outperform competitors. These findings not only validate 1inch's superior rates but also provide valuable insights for continuous protocol optimization and underscore the critical role of data-driven decision-making in advancing DeFi infrastructure. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.01950 |
| By: | Ruslana Datsenko; Johannes Fleck |
| Abstract: | Economic growth in some euro area countries has been lackluster since the COVID-19 pandemic. Concurrently, the ECB hiked its policy rate to fight inflation. In this note, we show that high interest rates have depressed economic activity more in those euro-area countries with large manufacturing sectors. |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-11-12-2 |
| By: | Galo Nuño; Philipp Renner; Simon Scheidegger |
| Abstract: | This paper studies monetary policy in a New Keynesian model with persistent supply shocks, that is, sustained increases in production costs due to factors such as wars or geopolitical fragmentation. First, we demonstrate that Taylor rules fail to stabilize long-term inflation due to endogenous shifts in the natural interest rate. Second, we analyze optimal policy responses under discretion and commitment. Under discretion, a systematic inflationary bias emerges when the shock impacts the economy. Under commitment, the optimal policy adopts a lean-against-the-wind approach without compensating for past inflation, implying that “bygones are bygones”. We further extend the model to incorporate the zero lower bound (ZLB) and show that the optimal policy supports preemptive easing. |
| Keywords: | deep learning, Markov switching model, cost-push shocks |
| JEL: | E32 E58 E63 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11463 |
| By: | Tom, Daniel M. Ph.D. |
| Abstract: | There is considerable regulatory oversight on credit lending. Besides having to perform well predicting credit defaults, a credit model also needs to be explainable and non-discriminatory on protected demographics. A regression model neutralization technique eliminates disparate impact discrimination. We use it in our Logistic Regression with classic AI Beam Search, so our model meets these criteria. In contrast, the adversarial debiasing methodology has shortcomings, which we discuss. |
| Date: | 2024–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:rfp35 |
| By: | Francis Annan |
| Abstract: | We study the direct and indirect effects of randomized entry. In partnership with the two largest service providers in Ghana, we implement a three-step design that randomizes the entry of new financial mobile money vendors, who also sell non-financial goods/services, across local markets. This mixed financial and non-financial services setting is widespread and naturally emerges as the market entry approach for several real-world financial markets. Randomized entry increases firm conduct and service quality and decreases price-cost markups, indicating positive consumer surplus. We find evidence of within-market revenue reallocation and expansion for mobile money and a large services multiplier: revenues for non-financial goods/services increased (+20%), with aggregate service industry revenues increasing. These improvements emphasize the “real effects” of financial markets on the local economy, and come from adoption externalities and aggregate increase in household expenses. Entry increases local economic activity, and it does so not only by changing markets for digital financial services, but also by transforming the non-financial services sector. These effects are key ingredients for advancing basic and applied knowledge on firm entry in industry equilibrium. |
| JEL: | D18 D62 G20 G50 L22 L26 O12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33134 |
| By: | Jesper Lindé; Mr. Patrick Schneider; Mrs. Nujin Suphaphiphat; Hou Wang |
| Abstract: | This paper analyzes the effectiveness of foreign exchange intervention (FXI) in mitigating economic and financial shocks in India by applying the Integrated Policy Framework (IPF). It highlights how FXI can be a complementary tool in mitigating the tradeoff between output and inflation, specifically under large economic shocks amid temporarily shallow FX markets. The paper indicates that while FXI can soften adverse impacts on domestic demand and output during severe risk-off shocks, its benefits under normal conditions with liquid FX markets are limited. |
| Keywords: | Integrated policy framework; foreign exchange intervention; risk-off shocks |
| Date: | 2024–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/236 |
| By: | Raslan Alzuabi (School of Economics, University of Sheffield, Sheffield S1 4DT, UK); Daniel Gray (School of Economics, University of Sheffield, Sheffield S1 4DT, UK) |
| Abstract: | This study investigates the relationship between individual impressions of financial markets and household portfolio decisions in Japan. We analyse data from the Keio Household Panel Survey (KHPS) to examine how impressions about financial markets influence current and planned asset holdings. Initially, our findings reveal statistically and economically significant relationships between distinct impressions and current asset allocations and asset accumulation. The results relating to impressions about profitability and uncertainty remain robust when employing an instrumental variable approach that utilises historical impressions to control for potential endogeneity. Additionally, we explore the influence of current impressions on long-term financial planning, demonstrating their potential importance in shaping future planned asset allocation. These findings suggest that addressing misconceptions and influencing impressions regarding financial markets could potentially improve household financial well-being. |
| Keywords: | Asset allocation; Fractional models; Impressions about the stock market |
| JEL: | A13 C33 C35 D14 G11 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:shf:wpaper:2024012 |