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We present a theory in which the interaction between limited sharing of idiosyncratic labor income risk and labor adjustment costs (that endogenously arise through search frictions) determines interest rate dynamics. In the general equilibrium, the interaction of these two ingredients relates bond risk premiums, cross-sectional skewness of income growth, and labor market tightness. Our model rationalizes an upward-sloping average yield curve and predicts a negative relation between labor market tightness and bond risk premiums. We provide evidence for our theory's mechanism and predictions. [ABSTRACT FROM AUTHOR]

The role of monetary policy has become increasingly important in recent years, as a range of economic challenges have emerged, affecting both developing and economically advanced countries. The aim of this article is to examine the shift in the monetary policy of the EU, which has been expressed through changes in the tools used by the European Central Bank (ECB), and to consider the causes and economic implications of this shift. The descriptive analytical method was used to achieve this goal. The study identified that the aim of the ECB’s interest rate increases was primarily to slow down core inflation rates. The ECB has raised the refinancing rate from 0.5% to 2.5% in 2022 and halted asset purchase programs, such as the Pandemic Emergency Purchase Programme, which had previously stimulated liquidity growth. Despite these changes, forward guidance has been maintained as a useful tool for providing clarity and certainty to financial markets and the public about the future path of monetary policy. It is concluded in the study that the impact of the shift towards contractionary monetary policy is likely to be felt across a range of economic sectors, with higher borrowing costs potentially leading to reduced investment and lower levels of economic growth.

This paper investigates the impact of Covid-19 pandemic and monetary policy measures adopted by the European Central Bank (ECB) on the sovereign risk for the European Monetary Union (EMU) countries for the period between March-2020 and November-2020 using daily data. The impact of Covid-19 and monetary policy shocks on the credit default swap rates and bond yields are investigated relying on a fixed effects panel regression model for five core (Germany, France, Austria, Netherlands, Belgium) and three periphery (Italy, Portugal and Spain) countries. To investigate the cross-country differences in responses, the interactions of the independent variables with periphery dummy and other country-specific variables are included in the regressions. The results of the empirical analysis suggest that Covid-19 shock increased the sovereign risk in the periphery EMU countries significantly and monetary policy measures have been effective in easing financial conditions in these countries. The results are insignificant for the core countries. The results also show that financial stability alleviates the negative impact of Covid-19 on the sovereign risk.

This article provides several estimates for the shadow rate (SR) of the short-term interest rate in US. We assume maximal models with two and three Gaussian factors, and we use forward rates to estimate the model’s parameters. Based on that, we conclude that point estimates of SR should be taken with caution because they depend on the characteristics of the data set, including the sample size, maturities, and smoothness. The latter is even more crucial than other settings discussed previously in the literature, such as the number of factors.

The significance of retirement savings and private pension funds increased in the latest decades and gathered important amounts of capitals. The purpose of this paper is to investigate the macroeconomic effects of pension systems from an investment perspective in five Central and Eastern European countries. The analyzing process regarding several underlying macroeconomic effects of pension systems started from the premises that there is a strong connection between the structure of pension systems, the national economy and the development of the financial sector. The econometric tests were processed and applied by using pool data regression models and the method Pooled Instrumental Variables (IV) - Two-stage Least Squares (2SLS). The main conclusion highlights that the interest rate at deposits is correlated with the amount of incomes earned by population, inflation rate, severe material deprivation rate and the investment strategy of private pension funds.

We show that after monetary policy announcements, the conditional volatility of stock market returns rises more for firms with stickier prices than for firms with more flexible prices. This differential reaction is economically large and strikingly robust to a broad array of checks. These results suggest that menu costs—broadly defined to include physical costs of price adjustment, informational frictions, etc.—are an important factor for nominal price rigidity at the micro level. We also show that our empirical results are qualitatively and, under plausible calibrations, quantitatively consistent with New Keynesian macroeconomic models in which firms have heterogeneous price stickiness. (JEL E12, E31, E43, E44, E52, G12, L11)

ارائه تسهیلات در قالب عقود بانکی اگرچه باعث کسب درآمد و بقای بانک می‌شود اما هم‌زمان باید به توان پاسخ‌گویی بانک به سپرده‌گذاران و ریسک مطالبات غیرجاری نیز توجه شود، زیرا اینها عواملی هستند که می‌توانند به ورشکستگی بانک یا مؤسسه اعتباری منجر شوند. در این زمینه بانک­ها باید به بهینه­سازی منابع و مصارف خود بپردازند. در این تحقیق، مدل برنامه‌ریزی خطی برای شناسایی ترکیب بهینه منابع- مصارف بانک همراه با توجه هم‌زمان به افزایش درآمدها و کاهش ریسک‌ها، ارائه‌شده است؛ لذا این تحقیق از نوع کمّی و کاربردی است. داده­های لازم از منابع اطلاعاتی یک بانک تجاری در سال 1397 تهیه‌شده‌اند. متغیّرهای مدل، مقادیر تسهیلاتی هستند که در قالب عقود مختلف پرداخت می‌شوند و روش تحلیل داده‌ها، مدل‌سازی و برنامه­ریزی خطی است. نتایج تحقیق مقادیر بهینه هر یک از تسهیلات را مشخص کرد و این نتایج با ارقام واقعی مقایسه شد. همچنین سطح ریسک برای هر وام مشخص گردید و درنهایت پارامترهای مدل مورد تحلیل حساسیت قرار گرفتند. نتایج حل مدل برنامه‌ریزی خطی نشان داد که مقادیر بهینه با مقادیر واقعی در وام قرض‌الحسنه، مضاربه، جعاله تفاوت معنی­داری دارند. همچنین ضرایب سود تسهیلات اجاره به‌شرط تملیک، تسهیلات سلف و تسهیلات خرید دین بیشترین نقش در عایدی بانک دارند. به‌کارگیری این مدل می‌تواند باعث کاهش منابع بیکار، افزایش درآمد و کاهش ریسک مطالبات معوق در بانک شود. حتی در مواردی که بانک در حال زیان‌دهی است این مدل می‌تواند زیان را به حداقل برساند و از این طریق، احتمال ورشکستگی بانک را نیز کاهش دهد.

The transmission mechanism has been dominated by direct monetary measures since the crisis of 2008. While the indirect impacts of the unconventional monetary instruments have not been fully explored yet. Monetary policy and funding conditions determine pricing sentiments for bond, stock and currency markets, represented by the volatilities of their main indicators: stock market indices, exchange rates, and yield premia. Our theoretical model takes spillover effects into account when it determines the variables which are responsible for volatility: the activities of international financial institutions (like the ESM or the IMF) are represented by dummy variables, while the limited autonomy in the shadow of the ECB is captured through gravity-like approaches. Six EU member states outside the Eurozone and Switzerland were analysed between 2007 and 2019 with random effect panel regression models to identify the differences in the impact of spillover effects on capital market volatilities. The results obtained are considered to be useful in mapping the potential effects of continuing monetary easing in the near future.

This paper studies a simple monetary model with a Ricardian fiscal policy in which equilibria are indeterminate if monetary policy consists solely of a rule for fixing the short-term interest rate. We introduce explicitly into the model the agents' expectations of inflation which create the indeterminacy and show that there are two types of policies-a term structure rule or a forward guidance rule for the short rate-which lead to determinacy. The first consists in fixing the interest rates on a family of bonds of different maturities as function of realized inflation; the second consists in fixing the short-term interest rate and the expected values of the short-term interest rate for a sequence of periods into the future as a function of realized inflation. If the monetary authority chooses an inflation process that satisfies conditions derived in the paper and applies one of these rules, it anchors agents' expectations to this process, in the sense that it is the unique inflation process compatible with equilibrium when the interest rates or expected future values of the short rate are those specified by the term structure or forward guidance rule. © 2013 Springer-Verlag Berlin Heidelberg.

The paper uses historical data on interest rates from 1920 to 2016 to explore whether a world rate of interest exists and whether a monetary hegemon affects it. The first principal component of long-term interest rates accounts for 75% of the variation in a matrix of 17 countries and proxies for the world rate of interest. The U.S. played the role of a hegemon, influencing long-term bond rates. After the introduction of the euro in 1999, interest rates in most European countries followed German interest rates but German rates followed U.S. rates even more than before the introduction of the euro. In two countries on the northern periphery, Denmark and Sweden, interest rates shadow German rates and the low rates have contributed to rising house prices and rising mortgage debt. Independent monetary policy calls for targeted controls on capital flows. [ABSTRACT FROM AUTHOR]

Term structure drivers of 1‐year bond premia and conditional bond return risk are distinct. Consequently, the Cochrane–Piazzesi factor captures aggregate price of risk and not the amount of risk in 1‐year bond returns. One linear combination of forward rates captures most of the variation in bond return risk across maturities. Interest rate level captures substantial amount of variation in the conditional return risk, a finding consistent with rising inflation uncertainty with level of inflation and interest rates. The 4‐5 yield spread, an important positive predictor of bond return premia, has an opposing but limited impact on the conditional volatility. [ABSTRACT FROM AUTHOR]

This paper examines the nexus between inflation and central bank interest rate policies in inflation-targeting countries. First, it looks at the role of inflation among other factors affecting monetary policy. Second, it looks at the drivers of inflation alone. Thereby, the role of international spillovers from other countries is explicitly regarded as well, with the aim of assessing the extent to which inflation is driven by other countries' inflation or monetary policy is influenced by other economies. The empirical study covers advanced countries and emerging market economies for the period 1995 - 2016 and uses Bayesian global vector autoregression to model external linkages and to account for variable uncertainty. This study finds that inflation plays an important role for monetary policy. More importantly, central banks clearly consider additional factors and notably other countries' key indicators when setting interest rates. Inflation in turn is determined by both internal and external factors like the exchange rate and other countries' inflation. These findings are much more comprehensive than previous literature and demonstrate that central banks consider a multitude of domestic and global factors. [ABSTRACT FROM AUTHOR]

This paper investigates the effects of monetary policy shocks and uncertainty about monetary policy on key macroeconomic variables and interest rate spreads — the term spread and credit spread. We use monthly data for the United States and a multivariate structural GARCH-in-Mean VAR model to estimate the effects on the growth rate of real output, the inflation rate, term spread, credit spread, and the policy rate. We find statistically significant effects on all economic and financial variables. [ABSTRACT FROM AUTHOR]

We use wavelet analysis to study the relationship between the yield curve and macroeconomic indicators in Canada. We rely on the Nelson–Siegel approach to model the zero-coupon yield curve and use the Kalman filter to estimate its time-varying factors: the level, the slope and the curvature. Apart from establishing a bidirectional yield–macro relation, the paper broadens the existing literature by exploring the link between the monetary policy and the yield curve. We reached several conclusions. First, the monetary policy variable, the bank rate, affects mainly short-run interest rates. Arguably, the main driver for economic activity is the long-run interest rate (instead of the short run), suggesting that monetary policy is mostly ineffective. Second, we concluded that concerning the inflation rate, the Bank of Canada is very proactive. Third, regarding the unemployment rate, we found that both the slope and the curvature are leading indicators for the long-run evolution of unemployment. Finally, our results suggest that the industrial production index leads the yield curve factors and not the other way. [ABSTRACT FROM AUTHOR]

We study monetary policy implementation through an operating regime involving voluntary reserve targets (VRTs). Operating regimes based on reserve requirements may lead to a collapse in interbank trade, as they have since the financial crisis. We show that, no matter the abundance of reserves, VRTs encourage market activity and support the central bank's control over interest rates. We consider (i) the impact of anticipated and unanticipated liquidity injections by the central bank on market outcomes and (ii) a comparison with the implementation framework currently adopted by the Federal Reserve. Overall, a VRT framework may provide several advantages over other frameworks. [ABSTRACT FROM AUTHOR]

We study the dynamic relation between sovereign yield curve and external shocks driven by global uncertainty and capital inflows. A Nelson–Siegel model is estimated to capture the three latent factors of the yield curve corresponding to level, slope and curvature. The state-space representation of the model is used to document the dynamic relation between the factors of the yield curve, the domestic macroeconomic variables (capacity utilization ratio, inflation, and monetary policy rate) and the external factors (global risk perception and capital flows). We find that although domestic macroeconomic variables have some impact on the future shape of the yield curve, the impact is becoming weaker after the 2008 global financial crisis. The results suggest that external factors emerge to have sizeable and significant impact on both macroeconomic variables and the latent factors. These results have important policy implications for policymakers especially for central bankers and debt managers when capital flows have been a major concern after the 2008 global financial crisis. [ABSTRACT FROM AUTHOR]

Since 2012 several central banks have introduced a negative interest rate policy (NIRP) aimed at boosting real spending by facilitating an increase in the supply and demand for bank loans. We employ a bank-level dataset comprising 6558 banks from 33 OECD member countries over 2012–2016 and a matched difference-in-differences estimator to analyze whether NIRP resulted in a change in bank lending in NIRP-adopter countries compared to those that did not adopt the policy. Our results suggest that following the introduction of negative interest rates, bank lending was weaker in NIRP-adopter countries. The result is robust to a wide range of checks. This adverse NIRP effect appears to have been stronger for banks that were smaller, more dependent on retail deposit funding, less well capitalized, had business models reliant on interest income, and operated in more competitive markets. [ABSTRACT FROM AUTHOR]

This article explains the problem of adjustment to the challenges of globalization in terms of the logic underpinning four distinct policy constraints, or trilemmas, and their interrelationship, and in particular the disturbances that arise from capital flows. The analysis of a policy trilemma was developed first as a diagnosis of exchange rate problems (the incompatibility of free capital flows with monetary policy autonomy and a fixed exchange rate regime); but the approach can be extended. The second trilemma we describe is the incompatibility between financial stability, capital mobility and national policy choice over exchange rates. The third example extends the analysis to politics, and looks at the strains in reconciling democratic politics with monetary autonomy and capital movements. Finally, we examine the security aspect and look at the interactions of democracy with capital flows and international order. The trilemmas, in short, depict the way that domestic monetary, financial, economic and political systems are interconnected with the international order, or the impossible policy choices at the heart of globalization. Frequently, the trilemmas conjure up countervailing anti-globalization tendencies and trends. [ABSTRACT FROM AUTHOR]

We assess the contribution of economic and financial factors in the determination of euro area corporate bond spreads over the period 2001–2015. The proposed multi-market, no-arbitrage affine term structure model is based on the methodology proposed by Dewachter et al. (J Bank Finance 50:308–325, 2015). We model jointly the 'risk-free curve', measured by overnight index swap (OIS) rates, and the corporate yield curves for two rating classes (A and BBB). The model includes four spanned and six unspanned factors. We find that, in general, both economic (real activity and inflation) and financial factors (proxying risk aversion, flight to liquidity and general financial market stress) play a significant role in the determination of the spanned factors and hence in the dynamics of the risk-free yield curve and corporate bond spreads. Across the risk-free OIS curve, macroeconomic and financial factors are each responsible on average for explaining 30 and 65% of yield variation, respectively. For A- and BBB-rated corporate debt, the selected financial variables explain on average 50% of the variation in corporate spreads during the last decade. [ABSTRACT FROM AUTHOR]

For a number of euro area periphery countries, this paper explores the stability of the link between bank lending rates and yields on sovereign bonds. A stable relationship between these interest rates is important for the ECB's attempt to restore monetary policy transmission by conducting unconventional measures that aim at bringing down government bond rates. Using vector autoregressive models with time-varying parameters, we find that bank lending rates adjusted incompletely to changes in government bond rates before the onset of the financial crisis, while their responsiveness has even further weakened thereafter. Thus, our results suggest that periphery bank lending rates have not only decoupled from policy rates after mid-2008, but also from yields on sovereign bonds. [ABSTRACT FROM AUTHOR]

Financial engineering is an art, not a science. The core of the subject is how to camouflage increases in leverage as the source of raised earnings on equity capital. This article explores how and why demand for financial engineers grows globally under the influence of inflationary U.S. monetary policy and how a boom in their profession contributes importantly to the potentially devastating effect of monetary inflation on economic prosperity. It proceeds to consider the extent to which foreign countries, large or small, would take steps to counter their vulnerability to the financial engineers, with particular reference to the case of the emerging markets and Japan who have experienced at times the maximum impact. Of course, the most effective defense is monetary, but for many reasons detailed here, this has rarely been implemented. [ABSTRACT FROM AUTHOR]

This paper proposes a new framework that identifies a threshold between the fed funds rate and the 10-year Treasury yield and, when the threshold is breached, the risk of a recession in the near future is significant. Our framework predicted several recessions before the yield curve inversion point/monetary cycles' approaches. In addition, our framework accurately forecasted peaks in the S&P 500 index. [ABSTRACT FROM AUTHOR]

En este artículo se reporta el impacto de sorpresas económicas y anuncios de política monetaria no convencional en los factores de la estructura de tasas nominales en Brasil, Chile y México. Se evidencia que sorpresas locales de inflación y de política monetaria tienen mayor efecto en la forma de la estructura de tasas, además, se registran efectos asimétricos de dichas sorpresas en la estructura de tasas de las economías analizadas. Por otro lado, sorpresas externas tienen un impacto asimétrico, mientras que el efecto de anuncios de política no convencionales, tanto el Quantitative Easing como el Twist Operation son los anuncios que presentan mayor impacto en la estructura de tasas de interés.