144,437 results on '"monetary economics"'
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2. GLOBAL MONETARY AND FINANCIAL SYSTEM AS A METAPHYSICAL CONSTRUCT: PERSPECTIVES FROM THE METAPHYSICS OF MONEY
- Author
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Андрій Буз
- Subjects
metaphysics of money ,monetary economics ,global monetary and financial system ,global order ,philosophy of finance ,Economics as a science ,HB71-74 ,Business ,HF5001-6182 - Abstract
This article explores the metaphysical dimensions of the global monetary system, treating money as a concept influencing human thought and culture beyond its economic utility. The paradoxical nature of money – as both a tangible transaction mechanism and a metaphysical construct – shapes philosophical inquiry and social norms. Historical and philosophical perspectives reveal that money impacts societal structures and behaviour. The research uncovers the “hidden metaphysics” of money, showing its influence on Western thought and its role as a metaphor for value, trust, and cohesion. Understanding money's metaphysical qualities offers insights into economic crises and suggests reevaluating these aspects for robust philosophical and economic models. By recontextualising money within metaphysical discourse, this article broadens the understanding of its role in shaping human thought and social structures.
- Published
- 2024
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3. Essays in modern macroeconomics
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Wales, Daniel and Geraats, Petra
- Subjects
economics ,exchange rates ,international economics ,macroeconomics ,monetary economics ,monetary policy ,wealth inequality - Abstract
This PhD thesis consists of a short introduction followed by three papers. Each paper examines a different topic within the broad area of modern monetary and international macroeconomics. The first paper, Product Quality, Measured Inflation and Monetary Policy, written in collaboration with Alex Rodnyansky and Alejandro van der Ghote, fills a gap in the New Keynesian literature, which has largely ignored product quality adjustments. This paper proposes a tractable model of a New Keynesian (NK) economy where, in addition to the standard price and quantity channels, firms are able to endogenously adjust the quality of their products in response to shocks. This new model, featuring endogenous product quality changes subject to adjustment costs, nests the canonical New Keynesian model, which is frequently used as the starting point for policy analysis by central banks. In this framework, endogenous product quality choices imply a larger slope than the traditional NK Phillips curve as, for a positive productivity shock that lowers marginal costs, quality-adjusted prices decline because firms are simultaneously able to increase the quality of their products. Allowing firms to adjust product quality also amplifies the economy's response to productivity shocks. Following a positive productivity shock the natural real interest rate decreases by more as households look to smooth a larger increase in consumption, which is boosted by a rise in both the quantity and quality of the goods they consume. As a result, monetary policy responds by altering the nominal interest rate by more for a given productivity shock. Model misspecification of imperfectly observable quality adjustments matters more for macroeconomic stabilization than the mismeasurement of those adjustments. With no misperception of product quality by the monetary authority, the principles for optimal monetary policy are, nonetheless, unchanged as the product quality extensions to the canonical NK model preserve divine coincidence. My second PhD paper, The Impact of Large-Scale Asset Purchases on Wealth Inequality examines the relationship between monetary policy and household wealth inequality through changes in the size and composition of the central bank's balance sheet. I focus on the impact on household wealth inequality through the financial portfolio rebalancing channel of monetary policy transmission. I construct a theoretical model that has multiple assets (of differing liquidity), banks and heterogeneous agents, who experience idiosyncratic labor productivity shocks. This model is carefully calibrated to reproduce theoretical levels of wealth inequality which match those observed in the US Survey of Consumer Finances. I use the model to replicate the changes in the Federal Reserve's balance sheet which arose in the aftermath of the 2007/2008 financial crisis. This shows that an expansion of the central bank's balance sheet can materially alter the distribution of wealth, causing inequality to increase, while even extreme changes in the composition of the central bank's balance sheet (for example through maturity extension) have little effect. This arises as central bank purchases of longer term assets cause households to hold additional liquid financial wealth. Liquid financial assets are unevenly distributed in the population, and hence wealth inequality measures increase. When the model is calibrated to match the Federal Reserve's Large Scale Asset Purchases (LSAPs) from 2008 until 2014, wealth inequality increases by 3.8%, as measured by the Gini coefficient, suggesting this channel leads to a significant increase in wealth inequality. The final PhD paper, The Rise of Harrod-Balassa-Samuelson, begins by documenting two stylised facts. Firstly, over the past 70 years the positive cross-country relationship between aggregate consumer prices and real output per capita has strengthened (i.e. a rise in the Harrod-Balassa-Samuelson effect), as demonstrated using data from the Penn World Tables. Secondly, border frictions have increased over the same time frame, with international borders effectively becoming wider and an increasing failure of the Law of One Price (LOOP). I construct my own dataset of city-level relative prices using national sources across five continents to document the increasing failure of the LOOP. I then use a two-country endowment model with a domestic distribution services sector to construct an equilibrium failure of the LOOP. An increase in the relative size of the distribution services sector can simultaneously explain both stylized facts, while the standard explanation (a higher share of non-traded goods) may only explain the first. Furthermore, I extend the model to include production by monopolistically competitive firms, before solving and calibrating the model to closely replicate the two stylised facts.
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- 2022
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4. Essays in modern macroeconomics
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Haber, Timo and Faraglia, Elisa
- Subjects
Macroeconomics ,Monetary Economics ,Heterogeneous Agents - Abstract
This thesis contains three chapters, each addressing a highly relevant area of interest in modern macroeconomics. The first chapter tests the presence of state-dependent pricing frictions by analysing the effects of monetary policy during high inflation and after large monetary shocks. The second chapter focuses on the interaction of heterogeneity in firm potential with financial frictions and its effect on macroeconomic outcomes. The final chapter presents a global solution method for heterogeneous agent models that can handle interesting and relevent extensions to the standard setting.
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- 2022
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5. Economicus
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macroeconomics ,monetary economics ,financial markets ,public finance ,marketing strategy ,enterpreneurship ,Economics as a science ,HB71-74 - Published
- 2024
6. Essays in macro finance
- Author
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Kind, Thilo and Kung, Howard
- Subjects
Financial risk ,Assets ,Monetary economics ,Public finance - Abstract
This thesis covers Fiscal and Monetary policy, Public Financing, and investment decisions from a theoretical and empirical Asset Pricing perspective. My first chapter highlights a novel risk-transmission channel in which the government's debt financing decision affects the path of inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory directly depend on the conditional nominal term premium, giving rise to an optimal debt maturity policy that is state dependent. My research on monetary policy provides market-based evidence on threats to central bank independence. U.S. President Trump's tweets influence expectations about monetary policy leading to an erosion in the independence of the Federal Reserve due to political pressure. The high-frequency average effect on the expected fed funds rate is negative and statistically significant, with the magnitude growing by horizon. VAR evidence shows that the tweets impact actual monetary policy, the stock market, bond premia, and the macroeconomy. The chapter on Micro Uncertainty and Asset Prices shows that at low frequency, size and value premia exhibit strong positive co-movement, but are both negatively related to the equity premium. These patterns are explained in an investment-based asset pricing model featuring persistent micro and macro uncertainty. Micro uncertainty generates size and value premia waves, while macroeconomic uncertainty procures equity premium waves. The results highlights that the market index is a long-run hedge for value and size strategies. Lastly, my research on learning about ambiguous monetary policy highlights the effects of persistent revisions in policy rule expectations on macroeconomic variables and asset prices within a New Keynesian model with Calvo price setting. Extending the standard framework to generalized smooth recursive preferences allows me to separate the effects of risk aversion, elasticity of substitution, and ambiguity aversion when agents learn about regime switching monetary policy parameters.
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- 2021
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7. Salam (Islamic Economics Journal)
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economic development ,economic growth ,regional economics ,islamic economics ,institutional economics ,monetary economics ,Economics as a science ,HB71-74 ,Islam ,BP1-253 - Published
- 2023
8. Januskopf der deutschen Geldwirtschaft: Karl Helfferich (1872 bis 1924).
- Author
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Plumpe, Werner
- Abstract
Copyright of Zeitschrift für Unternehmensgeschichte is the property of De Gruyter and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)
- Published
- 2023
- Full Text
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9. تحلیل اثرگذاری نقدینگی و نرخ ارز بر تورم در حوزه زمان–فرکانس.
- Author
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صالح طاهری بازخا
- Abstract
Purpose: Despite the fact that there is consensus regarding the effects of inflation and the need to deal with it, the determinants of inflation, the evolution of the relationship between them, and the comparison of the intensity and weakness of each one is areas of controversy. Meanwhile, the frequency of exchange rate and liquidity in the corresponding studies stand out more than other variables. It is recommended to follow the exchange rate transition theory to control inflation through this channel. It is also necessary to control monetary aggregates according to what the monetarists have depicted about the origin of inflation across space and over time. Regardless of the intensity and weakness of the influences of the two variables in the context of time and in different horizons, inspired by the revealed facts and the support of the literature, what makes the problem more complex is the likelihood of the flow of causality to change between the variables. Therefore, although the effects of liquidity and exchange rate on inflation have been investigated in several studies, the reported results are not consistent. This situation can have different reasons, the discovery of which improves the cognitive processing power and provides immediate requirements for adopting efficient policies. In this direction, attention is paid to the intertwining of the above three variables, knowing the net effect of liquidity (exchange rate) on inflation by removing the effect of exchange rate (liquidity), and investigating the possibility of its change over time and in short-term and long-term horizons. In terms of intensity and flow of causation, it can be useful and become the subject of policy making. Methodology: The Granger causality test is a regular method of econometrics in which the causal relationship between time series is examined without referring to economic theories. According to its nature, this method provides a momentary measure of causality but is unable to analyze the dynamics and reliability of causality. In addition, in the Granger causality method, intermittent values of variables are used, and, as a result, there will be a possibility of eliminating instantaneous effects. To solve this problem, spectral analysis is used. Fourier transform is one of the widely used topics in spectrum analysis, which serves to reveal the existing relationships between time series at different frequencies. Due to the fluctuating nature of the correlation among some economic time series, it is investigated in the analysis. The dynamics of causality can also be used. In the Fourier transform, in addition to the local time information being left out, the stability of the hypothetical time series is essential. However, many time series are unstable and most of their characteristics change over time. Due to this limitation, the wavelet transform is considered as a useful alternative to the Fourier transform in discovering causal relationships. The present research investigated the relationship of liquidity growth and exchange rate with inflation. For this purpose, seasonal data from 1990 to 2022 and continuous wavelet transformation were used. The distinguishing feature of the research was the use of multiple coherence tools, partial coherence, partial phase difference and partial wavelet gain. Findings and Discussion: The results of the multiple correlation showed that, in the context of time and in the horizons of less than eight years, the growth of liquidity and the exchange rate are simultaneously a suitable explanation for the changes in inflation (similar to the coefficient of determination in the regression). Coherence, phase difference and partial wave interest showed that the growth of the exchange rate on all scales (up to 8 years) and over time creates inflationary pressure, the corresponding coefficient of which is less than 0.5. Liquidity growth and inflation have experienced an unstable relationship in terms of intensity, direction and flow of causality. So, within 1.5-4 years in the late 2010s, the growth of liquidity had a strong effect on inflation. In the horizon of 4-8 years in the 1997-2001, 2006-2011, and 2019-2020 periods, this pattern was repeated. This is important due to the inflationary conditions and the government budget. Liquidity following inflation has also happened on different scales, which can be attributed to the internalization of money in Iran's economy. Conclusion and Policy Implications: The results have two important policy implications as follows: 1. As long as the growth of the exchange rate and liquidity-induced inflationary pressure are concerned, the effect of the exchange rate is always little and stable. Therefore, it is suggested that exchange rate changes be included in the dynamics of inflation considered by the policy maker. This important point will not occur, unlike the current procedure which mainly occurs with the pattern of repression and mutation due to the inability to suppress. Therefore, instead of nominally anchoring the exchange rate, it is necessary for the policy maker to commit to maintain stability in the growth of the exchange rate so that the effects of inflation will be less. 2. Although the growth of liquidity has not created inflationary pressure in all the years ever since this relationship was established, the effects will be severe and destructive for the general level of prices. Therefore, it is necessary to prevent the transfer of discontent in the economy and monetize them, regardless of setting a horizon on inflation and expecting immediate effects. To this end, it is necessary to reduce the budget deficit and the imbalance in the banking system as two sources of liquidity expansion. In addition, it is not enough to look at the past history of liquidity following inflation and target liquidity growth; it should base a tool to guide monetary policy. Therefore, in addition to using the common monetary policy tool (interest rate), it is necessary to consider the control of monetary totals so that the monetary policy can achieve its original goals. [ABSTRACT FROM AUTHOR]
- Published
- 2023
10. The Market’s New Gold and the Promise of Bitcoin
- Author
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Futerman, Alan G., Sarjanovic, Ivo A., Hardwick, David F., Series Editor, Marsh, Leslie, Series Editor, Futerman, Alan G., and Sarjanovic, Ivo A.
- Published
- 2022
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11. Reverse Repurchase Rate on Selected Monetary Policy Indicators: A Vector Autoregression
- Author
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Martin Roy B. Base
- Subjects
interest rate ,inflation rate ,monetary policy ,monetary economics ,Industries. Land use. Labor ,HD28-9999 ,Marketing. Distribution of products ,HF5410-5417.5 ,Accounting. Bookkeeping ,HF5601-5689 - Abstract
This study evaluated the effectiveness of the reverse repurchase (RRP) rate as the main monetary policy instrument of the Bangko Sentral ng Pilipinas in affecting selected monetary policy indicators, particularly output gap, inflation, and nominal exchange rate, through a modified New Keynesian monetary policy model using vector autoregression (VAR). The results showed that changes in the RRP rate affects output gap, inflation, and nominal exchange rate, albeit not statistically significant. In addition, the “price puzzle” was seen in the results. This pertains to an increase in inflation after monetary policy contraction which is in contrast with the standard monetary policy theory.
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- 2022
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12. Analysis of the Imperial Rent of Reserve Currency: A Manifestation of Existence and a Method of Quantity Estimation.
- Author
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Osman, Omar
- Subjects
COST effectiveness ,MONEY supply ,FOREIGN exchange ,HARD currencies ,EUROZONE ,RENT ,INTERNATIONAL finance - Abstract
This article provides an analysis of the economic cost incurred by the world through the use of the fiat international reserve currency since the end of the 1971 gold standard system. The article uses the Quantity Theory of Money to provide an empirical manifestation of how reserve currency yields income to its issuing country through the provision of an inflation buffer, which is equivalent to what the article frames as an imperial rent of reserve currency. The article then provides a method to estimate the cumulative quantity of this rent by using data on the broad money supply, nominal GDP, and world total official foreign exchange holdings of the currency of the country in question. The article estimates that the quantity of the imperial rent of reserve currency that accrued to the four major reserve currency-issuing states (US, Euro area, UK, Japan) from the end of the gold standard until the end of 2021, which was accumulated through the official channel only, is of a value equivalent to 11.1 trillion USD, 71 % of this amount went to the US singly. [ABSTRACT FROM AUTHOR]
- Published
- 2023
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13. Evolución de los esquemas de política monetaria.
- Author
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Sandoval Paucar, Giovanny
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INTEREST rates ,CENTRAL banking industry ,FINANCIAL security ,ECONOMIC equilibrium ,MARKETING strategy ,INFLATION targeting ,MONETARY policy - Abstract
Copyright of Ensayos de Economia is the property of Universidad Nacional de Colombia and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)
- Published
- 2023
- Full Text
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14. Frictional Markets: A Labor Market Model and Two Monetary Experiments
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Klapp, Francisco
- Subjects
Economics ,Experimental Economics ,Labor Economics ,Monetary Economics ,Search Theory - Abstract
While the usual paradigm of supply and demand in a frictionless market is useful for dis- cussing many issues, plenty of important questions are not easily addressed with this approach. In this dissertation I aim to further our understanding of markets where trading frictions are relevant from two different perspectives: a search-theoretic model and labora- tory experiments.The first chapter of this dissertation focuses on a frictional labor market where firms can decide to replace current employees by randomly search for new candidates. I show that even in an economy where agents are risk neutral and face no liquidity constraints, severance payments emerge as part of an optimal contract when firms can search on-the-job. An optimal contract is composed of both the wage and a payment conditional on the worker being replaced. The size of the payment is chosen to allow the firm to internalize the externality associated so that firms take into account the total surplus effect of their replacement hire decisions. I add ex ante heterogeneity among workers which makes the pairwise optimal contract insufficient to achieve the constrained-efficient result (even under the Hosios condition) and then use a calibrated version of the model to illustrate that a lower on-the-job search cost can in fact reduce welfare.In the second chapter, I develop an experimental framework to investigate price, output and welfare consequences of implementing the optimal monetary policy in a version of the search- theoretic money model of Lagos and Wright (2005): The Friedman Rule. I aim to further understand previous experimental results by Duffy and Puzzello (2022) which are somewhat at odds with the standard theory and contrary to the optimality of the rule vis-`a-vis an inflationary scheme, which they suggest could be rationalized on the basis of liquidity constraints and/or precautionary motives due to future price uncertainty. For this, I request subjects to make predictions about market prices and include a novel treatment for the decentralized goods market to try and mitigate price uncertainty: prices are exogenously imposed on consumers so they can only select from a fixed menu of quantities (and prices) when making an offer. My results tend to be consistent with previous experimental findings, but no clear evidence for the Friedman Rule emerges. Even when prices are fixed exogenously in pairwise meetings, evidence in favor is still only mixed and high volatility of prices in the centralized market persists. When using subjects own predictions about the centralized market price to look at how they expected to rebalance their holdings conditional on their beliefs there seems to be a clear bias: subjects mostly want to increase their token holdings regardless of previous trades.In the third and last chapter, I use a semi-unstructured bargaining approach to experimentally study the effects of liquidity constraints on the determination of terms of trade. This setting is specially relevant for search-theoretic models of money: trade surplus and its di- vision are endogenously and simultaneously determined, with participants facing possible liquidity constraints due to buyer’s endogenous ex-ante choice of costly money holdings. My aim is to test the empirical relevance of two widely used axiomatic bargaining solutions: generalized Nash bargaining and Kalai’s proportional bargaining. Each bargaining solution predicts different outcomes and buyer’s anticipating their decision’s effect on the bargaining outcome may choose to additionally restrict their money holdings, which can prevent efficient outcomes from being achieved, even when money is costless to hold. A most relevant issue, since the protocol to determine terms of trade in monetary economies is critical for normative results, optimal monetary policy, and the welfare cost of inflation. By imposing different costs to holding money, I find strong evidence that costlier holdings do incentivize participants to economize on money holdings leading to a more constrained bargaining set resulting in less production and surplus, but find only mixed evidence in favor of any of the two bargaining solutions. Finally, I introduce two possible variations to the model that help better understand the data: myopic buyers and a sunk cost fallacy.
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- 2023
15. Essays on Monetary Policy and Financial Markets
- Author
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Emeksiz, Ece Ozge
- Subjects
Economics ,Financial Economics ,Macroeconomics ,Monetary Economics - Abstract
This dissertation consists of three essays on the monetary policy pass-through to financial markets and bank balance sheets. I use frontier econometric methods combined with rich micro and macro-level datasets to examine the effect of monetary policy on financial markets and banks' balance sheets, focusing on how specific bank and market characteristics amplifies the monetary policy transmission mechanism. Moreover, I show that monetary policy transmits to real economic outcomes through financial markets and banks' balance sheets. Finally, I complement my empirical findings with theoretical models to identify the underlying monetary policy transmission mechanisms.The first chapter of my dissertation studies the effect of market power on monetary policy transmission to banks' funding dynamics, lending, and profitability by comprehensively studying the interactions among the deposit, wholesale funding, and credit markets, which is missing in the literature. In this chapter, I document the heterogeneous impact of monetary policy on banks' deposit, wholesale funding, and lending spreads depending on the degree of their bank market power. Specifically, I show that after an increase in the policy rate, banks with higher market power increase their deposit and loan rates less and access wholesale funding markets at a relatively lower cost compared to other banks. Hence, banks with higher market power counterbalance the fall in their deposit inflows by increasing their reliance on wholesale funding, and their lending decreases less than other banks following a monetary contraction. This "wholesale funding channel" dampens the adverse effect of contractionary monetary policy on their lending and profitability. I further show that bank market power affects monetary policy transmission to the real economy through its impact on bank-level lending. In particular, aggregate lending and employment decrease less in areas served by banks with higher market power after an increase in the policy rate. Finally, I rationalize my empirical findings by building a theoretical model with monopolistic competition. In the model, banks with higher market power access wholesale funding markets at a lower cost, which generates imperfect pass-through of monetary policy.The second chapter of my dissertation provides a new channel of monetary policy-pass-through to bank lending and lending rates, "bank liquidity channel". In particular, I evaluate monetary policy pass-through conditional on bank liquidity using rich bank-level balance sheets and income statement data. I find that after an increase in the policy rate, funding inflows of banks decreases and constrain banks' loan originations. However, banks with less liquid balance sheets reduce their loan supply more due to their liquidity constraints. In particular, these banks start to shrink their balance sheets by reducing their loan originations as they don't have enough buffer stock liquidity to deplete when they face an adverse shock. Second, I document that banks with less liquid balance sheets increase their loan rates more than other banks following a monetary contraction. Lastly, I build a theoretical model with heterogeneous banks that explains the underlying mechanism. In the model, bank liquidity constraints combined with monopolistic competition impose frictions on monetary policy pass-through to bank lending rates, where there is no deposit rate dispersion among banks based on their liquidity position.Finally, Chapter 3 studies the impact of maturity mismatch between banks' assets and liabilities on monetary policy transmission to bank profitability and asks whether the role of the maturity mismatch channel has changed during the zero lower bound (ZLB) environment. Using high-frequency monetary policy surprises that allow me to separate the effects of conventional and unconventional monetary policy, I first show that bank stock prices decrease significantly after contractionary federal funds rate and forward guidance shocks. That is, the indirect effects of contractionary monetary policy (e.g., the signaling impact of a weaker economy, higher default probabilities, and a weak bank balance sheet performance) outweigh its direct effect (the expected improvement in net interest margins) on banks' stock prices. I then document that banks with larger maturity mismatch are affected less negatively from the contractionary monetary policy surprises as their expected net interest margins rise more after an increase in the level and slope of the yield curve. Turning to the zero lower bound (ZLB) environment, I show that large-scale asset purchases (LSAP) that decrease the long-term yields affect bank stock prices positively during this period. However, the maturity mismatch channel ceased to exist in the ZLB environment. Specifically, the response of bank stock prices stopped varying depending on the maturity structure of their balance sheets, indicating a limitation to unconventional monetary policy.
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- 2023
16. The Role of Financial Institutions in Digital Currency Business Models of Central Banks
- Author
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Ivan Pavlović
- Subjects
digital currencies of central banks ,monetary economics ,financial institutions ,direct model ,indirect model ,hybrid model ,Geography (General) ,G1-922 ,Economics as a science ,HB71-74 - Abstract
The development of central bank digital currencies brings into question the business model to be used for their application in the financial system. Three business models are imposed and considered in search of the one that will best be adopted into the financial system and enable optimal management of the monetary economics. The role of financial institutions and corporate banks varies depending on the business model. Each model, direct, indirect or hybrid, features its own specificities. Central banks have implemented research and analysis of the stated models in order to find the one that would generate maximum potential. The conducted analyses show that central banks lean toward the hybrid model that encompasses the benefits of the direct and indirect models. The hybrid model does not deteriorate financial stability, financial institutions keep their role, while monetary policy management becomes more effective than in the case of the remaining models.
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- 2022
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17. AFEBI Economic and Finance Review
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economics science ,public policy ,monetary economics ,regional economics ,industrial economics ,economic development ,Finance ,HG1-9999 ,Economics as a science ,HB71-74 - Published
- 2022
18. On the Rationale of Central Bank Transparency, Accountability and Communication.
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Muchlinski, Elke
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- 2022
- Full Text
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19. Jurnal Ekonomi Pembangunan
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development economics ,regional economics ,islamic economics ,monetary economics ,industrial economics ,international trade ,Economics as a science ,HB71-74 ,Finance ,HG1-9999 - Published
- 2022
20. JDE (Journal of Developing Economies)
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economics ,banking and finance ,international trade ,monetary economics ,economic development ,public economics ,Economics as a science ,HB71-74 ,Economic growth, development, planning ,HD72-88 - Published
- 2022
21. Bargaining Under Liquidity Constraints: Nash vs. Kalai in the Laboratory.
- Author
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Duffy, John, Lebeau, Lucie, and Puzzello, Daniela
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LIQUIDITY (Economics) ,EXPERIMENTAL economics ,MARKETING literature ,NASH equilibrium ,PARETO analysis ,FINANCIAL leverage - Abstract
We report on an experiment in which buyers and sellers engage in semi-structured bargaining in two dimensions: how much of a good the seller will produce and how much money the buyer will offer the seller in exchange. Our aim is to evaluate the empirical relevance of two axiomatic bargaining solutions, the generalized Nash bargaining solution and Kalai's proportional bargaining solution. These bargaining solutions predict different outcomes when buyers are constrained in their money holdings. We first use the case when the buyer is not liquidity constrained to estimate the bargaining power parameter, which we find to be equal to 1/2. Then, imposing liquidity constraints on buyers, we find strong evidence in support of the Kalai proportional solution and against the generalized Nash solution. Our findings have policy implications, e.g., for the welfare cost of inflation in search-theoretic models of money. [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
- View/download PDF
22. MODERN MONEY THEORY: RISE IN THE INTERNATIONAL SCENARIO AND RECENT DEBATE IN BRAZIL
- Author
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SIMONE DEOS, OLÍVIA BULLIO MATTOS, FERNANDA ULTREMARE, and ANA ROSA RIBEIRO DE MENDONÇA
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Macroeconomics ,monetary economics ,Modern Money Theory ,Economics as a science ,HB71-74 - Abstract
ABSTRACT This paper has a twofold purpose. The first one is to present the core ideas of MMT. The second one is to explain its recent rise in Brazil after the publication of Andre Lara Resende’s articles in the press in 2019 and a book in 2020. In order to do that, the paper is organized as follows. After the introduction, the first session presents the core ideas of MMT: i) chartal money, or tax driven money; ii) functional finance; iii) Minskyan financial fragility; iv) sectoral balances approach; v) employer of last resort. The second session presents some critiques MMT has received both from the orthodox and the heterodox sides at the international level. The third section discusses the particular way in which MMT’s ideas have recently arrived in Brazil, considering peculiarities of the Brazilian economic debate and political scenario. The final session brings back the main ideas presented in the paper and raises critics to Lara Resende’s contributions from a political economy perspective.
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- 2021
- Full Text
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23. Machine Learning Regularization Methods in High-Dimensional Monetary and Financial VARs.
- Author
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Sánchez García, Javier and Cruz Rambaud, Salvador
- Subjects
- *
IMPULSE response , *FACTOR analysis , *ECONOMIC models , *ECONOMIC research , *FINANCIAL research , *MACHINE learning - Abstract
Vector autoregressions (VARs) and their multiple variants are standard models in economic and financial research due to their power for forecasting, data analysis and inference. These properties are a consequence of their capabilities to include multiple variables and lags which, however, turns into an exponential growth of the parameters to be estimated. This means that high-dimensional models with multiple variables and lags are difficult to estimate, leading to omitted variables, information biases and a loss of potential forecasting power. Traditionally, the existing literature has resorted to factor analysis, and specially, to Bayesian methods to overcome this situation. This paper explores the so-called machine learning regularization methods as an alternative to traditional methods of forecasting and impulse response analysis. We find that regularization structures, which allow for high dimensional models, perform better than standard Bayesian methods in nowcasting and forecasting. Moreover, impulse response analysis is robust and consistent with economic theory and evidence, and with the different regularization structures. Specifically, regarding the best regularization structure, an elementwise machine learning structure performs better in nowcasting and in computational efficiency, whilst a componentwise structure performs better in forecasting and cross-validation methods. [ABSTRACT FROM AUTHOR]
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- 2022
- Full Text
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24. Monetary Economics and Macroeconomic Model for an Islamic Economy
- Author
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Khan, M. Fahim, Zulkhibri, Muhamed, editor, Abdul Manap, Turkhan Ali, editor, and Muneeza, Aishath, editor
- Published
- 2019
- Full Text
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25. Dependency of Islamic bank rates on conventional rates in a dual banking system: A trade-off between religious and economic fundamentals
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M. Kabir Hassan, Mamunur Rashid, Shifa Mohamed Saeed, and Islam Abdeljawad
- Subjects
Religiosity ,Bank rate ,Economics and Econometrics ,Profit (accounting) ,Economics ,Islam ,Monetary economics ,Arbitrage ,Robustness (economics) ,Finance ,Legitimacy ,Dual (category theory) - Abstract
The dependence of Islamic bank rates on the conventional bank rate violates the religiosity principle and the fundamentals of an efficient market due to the possibility of arbitrage profit from the rate differences. This study tests such dependency in a dual banking system by considering monthly data from January 2009 to April 2018 on Malaysian banks using several ARDL tests, supplemented by robustness tests using a 12-month correlation of the rolling standard deviation and causality models based on the Toda-Yamamoto approach to investigate the short- and long-run dependency of rates. The study finds that Malaysia's Islamic bank deposit and financing rates are influenced by both the conventional and Bank Negara Malaysia's policy rates. Results imply that Islamic banks do serve profit-driven customers. We suggest that Islamic banks are forced to benchmark their rates to conventional rates because of the trade-off between religious and economic fundamentals by profit-driven customers. The study demonstrates that the question of Islamic legitimacy of Islamic banks needs to be addressed considering the correct profiling of the customer-base and the regulatory environment in which Islamic banks operate. We discuss implications for Islamic rate-setting behavior in the presence of monetary shocks in a dual banking system.
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- 2023
26. Asymmetric capital structure speed of adjustment, equity mispricing and Shari’ah compliance of Malaysian firms
- Author
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Rwan El-Khatib, Hafezali Iqbal Hussain, M. Kabir Hassan, and Mohsin Ali
- Subjects
Economics and Econometrics ,050208 finance ,Leverage (finance) ,ComputingMilieux_THECOMPUTINGPROFESSION ,Capital structure ,05 social sciences ,Equity (finance) ,Shari ah ,Monetary economics ,Debt financing ,GeneralLiterature_MISCELLANEOUS ,Equity financing ,0502 economics and business ,ComputingMilieux_COMPUTERSANDSOCIETY ,Business ,050207 economics ,Finance - Abstract
Traditionally, equity mispricing has been documented as an important determinant of speed of adjustment to target leverage levels. More recently, the impact of Shari’ah compliance has been shown to significantly affect capital structure decisions. In this paper, we explore the effect of equity mispricing in Shari’ah compliant (vs. non-compliant) firms. We conduct our study on a comprehensive sample of Malaysian firms from year 1998–2016. We show that established findings in the dynamic trade-off theory do not hold for Shari’ah compliant firms. Shari’ah compliant firms increase their reliance on equity financing at greater levels than non-compliant firms when they are above target levels and equities are overpriced. In contrast, for Shari’ah compliant firms below target levels and where equity is under-priced, the rate of adjustment is slower than non-compliant firms. Our findings suggest that managers of Shari’ah compliant firms are inclined to time the equity market when above target levels to capture the impact of lower costs of equity during periods of over-valuation of equity. However, those managers tend to be reluctant to resort to debt financing when below target leverage even in the presence of equity under-pricing.
- Published
- 2023
27. What determines the profitability of Islamic banks: Lending or fee?
- Author
-
A. S. M. Sohel Azad, Aziz Hayat, and Saad Azmat
- Subjects
Economics and Econometrics ,050208 finance ,05 social sciences ,Islam ,Sample (statistics) ,Monetary economics ,Loan ,0502 economics and business ,Sustainability ,Profitability index ,Business ,050207 economics ,Empirical evidence ,Finance ,Credit risk - Abstract
This paper analyses the effect of bank lending and fee income on Islamic and conventional bank's performance. The paper builds a theoretical model and provides empirical evidence to show that Islamic banks as compared to conventional banks can have a greater reliance on fee-based income than returns from loans to increase their profitability. Using data from a sample of 20 countries for the period from 2000 to 2015 for Islamic and conventional banks, we find that the bank fee is an important determinant of the profitability of an Islamic bank. Interestingly, many commonly used measures such as loan to deposit ratio do not affect the Islamic banks' profitability as much as they do for conventional banks. Our findings imply that Islamic banks' lower sensitivity to loan to deposit ratio may contribute to lower credit risk. However, an over-reliance on fee-based income may affect their growth, profitability and sustainability in the long run.
- Published
- 2023
28. Essays on Monetary Economics
- Author
-
Z��iga, Diego
- Subjects
Economics ,Economic theory ,Finance ,Medium of Exchange ,Monetary Economics ,Money ,Unit of Account - Abstract
In this dissertation, I develop a monetary model where money is used in two roles: as the medium of exchange in spot transactions, and as the unit of account in credit contracts. I use this model to jointly study these two functions, comparing their properties and exploring their interactions. In the first chapter, I present the model where money can be used as both medium of exchange and unit of account. These functions stem from limits to trade that can be partially overcome with the use of money. The unit of account role in contracts arises from the need to specify a payment, in terms of goods or money. Here, I establish the conditions for money to be chosen as the unit of account in terms of the stability of both relative prices and the general price level. I also illustrate the benefits of dollarization (writing contracts in a foreign currency) or indexation (allowing contracts to be specified in terms of an artificial unit of account). I then analyze the stationary monetary equilibrium, where the value of money is determined from its demand as medium of exchange and a given monetary policy. As a result of this analysis, I provide several insights into these functions. For instance, the conditions that make money a good medium of exchange are different from the ones that make it a good unit of account. The unit of account role provides a rationale for a price stability goal of monetary policy, distinct from the goal of keeping a low inflation rate. Finally, the model illustrates how a currency can become a better unit of account as a result of being more widely used as a medium of exchange. In the second chapter, I analyze two general approaches to monetary policy: inflation and price-level targeting. The former aims for a target level of inflation, while the latter attempts to keep the level of prices in an established path. In order to compare these two policies, I extend the benchmark model to incorporate long-term contracts. On one hand, price-level targeting enhances the long-term stability of the value of money, making it a better unit of account. On the other hand, inflation targeting is better for the medium of exchange role, since the inflation level is the relevant cost for the use of money in spot transactions. I argue that a combined approach resembles the recent Federal Reserve policy of "flexible average inflation targeting," and that indexation would allow monetary policy to sidestep this trade-off.
- Published
- 2022
29. A WISCONSIN AUSTRIAN: WILLIAM AMASA SCOTT.
- Author
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McCann Jr, Charles R.
- Subjects
PUBLIC spaces ,INSTITUTIONAL economics ,POLITICAL science ,HOME schooling ,INTELLECTUALS ,ECONOMISTS - Abstract
William Amasa Scott was in his time well-known as a monetary economist as well as a popularizer of economic ideas, whose opinions were widely regarded by the public. A proponent of Austrian economics and defender of classical economic theory, he soon found a home at the School of Economics, Political Science and History (later the School of Economics) at the University of Wisconsin which, while initially a mainstream department, would evolve into the citadel of Institutional Economics. Notwithstanding his status as an authority on monetary economics and his place as a public intellectual, he remained at the University something of an outsider throughout his career and today is largely forgotten. [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
- View/download PDF
30. Thornton, Henry (1760–1815)
- Author
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Laidler, David and Macmillan Publishers Ltd
- Published
- 2018
- Full Text
- View/download PDF
31. Monetary Economics, History of
- Author
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Dimand, Robert W. and Macmillan Publishers Ltd
- Published
- 2018
- Full Text
- View/download PDF
32. The Elusive A.C. Pigou
- Author
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Lovejoy Knight, Karen, Cohen, Avi J., Series Editor, Harcourt, G. C., Series Editor, Kriesler, Peter, Series Editor, Toporowski, Jan, Series Editor, and Lovejoy Knight, Karen
- Published
- 2018
- Full Text
- View/download PDF
33. Aalto Observatory on Digital Valuation Systems : A Position Paper
- Author
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Huttunen, Jenni, Nikander, Pekka, Hutchison, David, Series Editor, Kanade, Takeo, Series Editor, Kittler, Josef, Series Editor, Kleinberg, Jon M., Series Editor, Mattern, Friedemann, Series Editor, Mitchell, John C., Series Editor, Naor, Moni, Series Editor, Pandu Rangan, C., Series Editor, Steffen, Bernhard, Series Editor, Terzopoulos, Demetri, Series Editor, Tygar, Doug, Series Editor, Weikum, Gerhard, Series Editor, Diplaris, Sotiris, editor, Satsiou, Anna, editor, Følstad, Asbjørn, editor, Vafopoulos, Michail, editor, and Vilarinho, Thomas, editor
- Published
- 2018
- Full Text
- View/download PDF
34. Does import competition from China discipline overconfident CEOs in U.S. firms?
- Author
-
Sheng-Syan Chen, Shu-Cing Peng, and Chia-Wei Yeh
- Subjects
History ,Economics and Econometrics ,Polymers and Plastics ,Product market ,Monetary economics ,Industrial and Manufacturing Engineering ,Competition (economics) ,Shock (economics) ,Investment value ,Mergers and acquisitions ,Cash flow ,Business ,Business and International Management ,Investment performance ,Finance ,Overconfidence effect - Abstract
We examine how the trade shock from China influences the behavior and investment performance of overconfident CEOs in U.S. firms. We show that the rise of Chinese import competition curbs investments and improves investment value and acquisition performance for firms with overconfident CEOs. Intensified Chinese product competition also reduces the incentives for these firms to expand assets, invest out of cash flows, pursue aggressive financial policies, and increase risk exposure, and enhances their incentives to buy back shares. Overall, the evidence suggests that product market competition is an effective external governance mechanism for curbing the adverse effects of managerial overconfidence.
- Published
- 2023
35. Unemployment Risk and Debt Contract Design
- Author
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Nir Yehuda, Daniel Cohen, Christopher S. Armstrong, and Xiaolu Zhou
- Subjects
Economics and Econometrics ,Creditor ,media_common.quotation_subject ,Monetary economics ,Credit rating ,Negotiation ,Debt ,Capital (economics) ,Accounting ,Unemployment ,Profitability index ,Business ,Nexus (standard) ,Finance ,media_common - Abstract
We examine how firms’ contractual relationships with their employees affect the design of their debt contracts, and the use of financial covenants in particular. Viewing the firm as the nexus of both explicit and implicit contractual relationships, we argue that managers cater to their employees’ preferences when negotiating contractual terms with creditors. We argue that an increase in unemployment-insurance benefits reduces employees’ cost of job loss, which, in turn, allows managers to take more risk. First, we show that more generous benefits are associated with a higher operating leverage, operating cash flow volatility, and product-development frequency. We then find that loans initiated following an increase in unemployment-insurance benefits include a higher proportion of performance, rather than capital covenants. Overall, our study demonstrates how the design of debt contracts changes in response to arguably exogenous changes in employees’ collective tolerance—and, in turn, managers’ preferences—for risk. JEL Classifications: M41; G32; J60.
- Published
- 2023
36. Can Forward Commodity Markets Improve Spot Market Performance? Evidence from Wholesale Electricity
- Author
-
Frank A. Wolak and Akshaya Jha
- Subjects
Transaction cost ,History ,Spot contract ,Polymers and Plastics ,business.industry ,Commodity ,Spot market ,Monetary economics ,Industrial and Manufacturing Engineering ,Information aggregation ,Economics ,Production (economics) ,Electricity market ,Electricity ,Business and International Management ,business ,General Economics, Econometrics and Finance - Abstract
Forward markets are believed to aggregate information about future spot prices and reduce the cost of producing the commodity. We develop a measure of the extent to which forward and spot prices agree in markets with transaction costs. Using this measure, we show that day-ahead prices better reflect real-time prices at all locations in California’s electricity market after the introduction of financial trading. We then present evidence suggesting that operating costs and input fuel use fell after the introduction of financial trading on days when the nonconvexities inherent to the production and transmission of electricity are especially relevant. (JEL D23, D24, G13, L94, L98, Q48)
- Published
- 2023
37. Learning and the capital age premium
- Author
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Chi-Yang Tsou, Chenjie Xu, and Kai Li
- Subjects
History ,Stylized fact ,Economics and Econometrics ,Polymers and Plastics ,Perfect information ,Contrast (statistics) ,Monetary economics ,Industrial and Manufacturing Engineering ,Capital allocation line ,Capital (economics) ,Economics ,Production (economics) ,Capital asset pricing model ,Business and International Management ,Duration (project management) ,Finance - Abstract
Imperfect information and learning are introduced into a production-based asset pricing model. Our model features slow learning about firms’ exposure to aggregate productivity shocks over time. In contrast to a full information case, our framework provides a unified explanation for the stylized empirical features of the cross-section of stocks that differ in capital age: old capital firms (1) have higher capital allocation efficiency; (2) are more exposed to aggregate productivity shocks and, hence, earn higher expected returns, which we refer to as capital age premium; and (3) have shorter cash-flow duration, when compared with young capital firms.
- Published
- 2023
38. How Does Mandatory Energy Efficiency Disclosure Affect Housing Prices?
- Author
-
Alecia Cassidy
- Subjects
Finance ,Economics and Econometrics ,business.industry ,Monetary economics ,Management, Monitoring, Policy and Law ,Investment (macroeconomics) ,business ,Affect (psychology) ,Capitalization ,Efficient energy use ,Market failure ,Nature and Landscape Conservation - Abstract
Since 2012, the United States has witnessed explosive growth in mandatory energy efficiency disclosure policies, which aim to address market failures in housing. I examine one such policy, comparing prices before and after the policy’s introduction for homes with different levels of energy efficiency features. I find increased capitalization of energy efficiency features. Effects are larger for difficult-to-observe features, suggesting the results are driven by information and not changing preferences for energy efficiency over time. This highlights the potential for disclosure policies to promote long-run energy efficiency investment by increasing the returns homeowners expect on these investments when they sell.
- Published
- 2023
39. Government debt and risk premia
- Author
-
Yang Liu
- Subjects
History ,Economics and Econometrics ,Polymers and Plastics ,Financial economics ,Risk premium ,Debt-to-GDP ratio ,Government debt ,Monetary economics ,Industrial and Manufacturing Engineering ,Debt service ratio ,Fiscal policy ,Economics ,Debt ratio ,Internal debt ,Business and International Management ,Finance ,Credit risk - Abstract
I document that government debt is related to risk premia in various asset markets: (i) the debt-to-GDP ratio positively predicts excess stock returns with out-of-sample R 2 up to 30% at a five-year horizon, outperforming many popular predictors; (ii) the debt-to-GDP ratio is positively correlated with credit risk premia in both corporate bond excess returns and yield spreads; (iii) higher debt-to-GDP ratio is associated with lower real risk-free rates, (iv) higher debt-to-GDP ratio corresponds to lower average expected returns on government debt; (v) debt-to-GDP ratio positively comoves with fiscal policy uncertainty. I rationalize these empirical findings in a general equilibrium model featuring recursive preferences, endogenous growth, distortionary taxation, and time-varying fiscal uncertainty. In the model, the tax risk premium is sizable and its time variation is driven by fiscal uncertainty. Furthermore, the model generates an endogenous relationship between the debt-to-GDP ratio and fiscal uncertainty. Fiscal uncertainty increases debt valuation through lower government discount rate. This mechanism is reinforced as higher debt conversely raises uncertainty because of future fiscal consolidations.
- Published
- 2023
40. Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks
- Author
-
Hendrik Bessembinder, Goeun Choi, K.C. John Wei, and Te-Feng Chen
- Subjects
History ,Economics and Econometrics ,Polymers and Plastics ,Monetary economics ,Full sample ,Industrial and Manufacturing Engineering ,Treasury ,Term (time) ,Shareholder ,Accounting ,Common stock ,National wealth ,Stock market ,Business ,Business and International Management ,Finance - Abstract
We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
- Published
- 2023
41. Global demand for basket-backed stablecoins
- Author
-
Garth Baughman and Jean Flemming
- Subjects
Economics and Econometrics ,General equilibrium theory ,media_common.quotation_subject ,05 social sciences ,Monetary economics ,Low demand ,Incentive ,Sovereignty ,Currency ,Digital currency ,0502 economics and business ,Economics ,050207 economics ,Volatility (finance) ,Welfare ,050205 econometrics ,media_common - Abstract
We develop a model where persistent trade shocks create demand for a basket- backed stablecoin, such as Mark Carney's "synthetic hegemonic currency" or Facebook's recent proposal for Libra. In numerical simulations, we find four main results. First, because of general equilibrium effects of the basket currency on the volatility of currency values, overall demand for that currency is small. Second, despite scant holdings of the basket, its global reach may contribute to substantial increases in welfare if the basket is widely accepted, allowing it to complement holdings of sovereign currencies. Third, we calculate the welfare maximizing composition of the basket, finding that optimal weights depend on the pattern of international acceptance, but that basket composition does not significantly affect welfare. Fourth, despite potential welfare improvements, low demand for the basket currency from buyers limits sellers' incentives to invest in accepting it, suggesting that fears of a so-called global stablecoin replacing domestic sovereign currencies may be overstated.
- Published
- 2023
42. Learning-through-Survey in Inflation Expectations
- Author
-
GwangMin Kim and Carola Binder
- Subjects
Inflation ,education.field_of_study ,media_common.quotation_subject ,Population ,Economics ,Survey data collection ,Information acquisition ,Monetary economics ,Elasticity of intertemporal substitution ,education ,Affect (psychology) ,General Economics, Econometrics and Finance ,media_common - Abstract
When surveys rely on repeat participants, this raises the possibility that survey participation may affect future responses, perhaps by prompting information acquisition between survey waves. We show that these “learning-through-survey” effects are large for household inflation expectations. Repeat survey participants generally have lower inflation expectations and uncertainty, particularly if their initial uncertainty was high. Consequently, repeat participants may be more informed about or attentive to inflation. This has important implications: for example, inflation expectations of new participants are more influenced by oil prices, and estimates of the elasticity of intertemporal substitution are lower for new participants. (JEL C83, D84, E31, E37, E58)
- Published
- 2023
43. Capital-Reallocation Frictions and Trade Shocks
- Author
-
Eugene Tan, Andrea Lanteri, and Pamela Medina
- Subjects
media_common.quotation_subject ,Disinvestment ,Economics ,Manufacturing firms ,Monetary economics ,Detailed data ,Empirical evidence ,Welfare ,General Economics, Econometrics and Finance ,media_common ,Aggregate productivity - Abstract
What are the short- and medium-term effects of an import-competition shock on firm dynamics and aggregate productivity? We address this question by combining detailed data on investment dynamics of Peruvian manufacturing firms, data on trade flows from China, and a quantitative general-equilibrium model with heterogeneous firms subject to idiosyncratic shocks. In the data, we find evidence of substantial frictions that slow capital reallocation, by rendering disinvestment and firm exit costly. In our model, these frictions shape the transitional dynamics after a trade shock. On impact, a drop in output prices due to import competition induces a spike in inaction, and exit of some productive firms, consistent with our empirical evidence. These effects expand the aggregate productivity wedge relative to a frictionless benchmark. Overall, productivity gains materialize slowly over time, whereas welfare gains emerge early in the transition.
- Published
- 2023
44. Essays on liquidity and funding frictions
- Author
-
Paulus, Ellen and Schaefer, Stephen
- Subjects
Financial markets ,Monetary economics - Abstract
This thesis combines an introductory chapter and three essays on liquidity and funding frictions in financial markets. Funding liquidity is a broad and elusive concept that generally denotes the ability to raise funds against collateral, quickly and at low cost. Despite being relevant to the trading activity in almost all financial markets, we know little about the empirical properties of funding liquidity. This is largely due to a lack of publicly available data. The first essay of this thesis has as objective to study the characteristics of funding liquidity in equity markets. To this end, I develop a new measure of aggregate equity-collateralized funding liquidity based on data from the stock lending market. I analyze the co-movement of funding liquidity with other variables that are considered important for equity prices and test whether expected stock returns are cross-sectionally related to the sensitivities of returns to fluctuations in aggregate funding illiquidity, controlling for fluctuation in aggregate market liquidity. I find evidence that changes in funding illiquidity matter for equity prices through an aggregate market liquidity channel. In particular, I show that a portfolio's liquidity risk is not determined by its unconditional correlation with aggregate market liquidity, but by its correlation conditional on the state of changes in funding illiquidity. This first essay prepares the ground for an empirical test of the interaction of market liquidity and funding liquidity, as theoretically documented in Gromb and Vayanos (2002, 2010) and Brunnermeier and Pedersen (2009). I conduct such a test in the second essay. The second essay of this thesis presents the results of my work with Kris Boudt and Dale Rosenthal. Using the new measure for equity-collateralized funding liquidity, we study the effect of market liquidity on funding liquidity, controlling for endogeneity. Theory suggests market liquidity can aect funding liquidity in stabilizing and destabilizing manners. We provide the first evidence of stabilizing financier behavior and confirm the existence of two regimes over the period of July 2006-May 2011. Furthermore, we show that we can separate the two regimes using the yield spread of Eurodollars over T-bills (TED spread) and that a regime switch occurs near a TED spread of 48 basis points. While the first two essays of this thesis strictly relate to the financial sector's supply of, and demand for, private liquidity, the last essay of this thesis shifts its attention to the supply of public liquidity. In this essay, I ask the question how the stringency of a Central Bank's Lending Facility affects the risk-taking behavior of a financial firm. To answer this question, I develop a model of collateralized lending in which the Central Bank chooses the maximum amount of funds it is willing to inject in the financial sector. In response, a financial firm chooses the exposure of its investment to funding risk. I show that financial risk-taking is non-monotonic with respect to the Lending Facility's loan ceiling. While a strict lending policy can reduce risk-taking below its autarky level, a generous lending policy can result in socially excessive risk-taking due to an asset substitution effect. When funding risk is highly elastic and the financial firm has a weak investment outlook, this prohibits the implementation of of first-best. Otherwise, socially optimal lending standards vary over the business cycle.
- Published
- 2014
- Full Text
- View/download PDF
45. Three essays on monetary policy and learning
- Author
-
Sarunas, Girdenas and Tatiana, Damjanovic
- Subjects
330 ,Economics ,Monetary Economics ,Econometric learning - Abstract
The rst chapter co-authored with Tatiana Damjanovic studies optimal mon- etary policy in a New Keynesian model at the zero bound interest rate where households use cash alongside house equity borrowing to conduct transactions. The amount of borrowing is limited by a collateral constraint. When either the loan to value ratio declines or house prices fall, we observe a decrease in the money multiplier. We argue that the central bank should respond to the fall in the money multiplier and therefore to the reduction in house prices or the loan to collateral value ratio. We also nd that optimal monetary policy generates a large and per- sistent fall in the money multiplier in response to the drop in the loan to collateral value ratio. The second chapter is focused on a macroeconomic model with sticky prices, rms borrowing market and the labour market frictions. We study connection be- tween monetary policy and labour market under the negative nancial and the positive productivity shocks. We have found that the interest rate rule with in a- tion and labour market targeting performs better than the rules with the aggregate consumption and debt targeting and is closest to the optimal policy as compared to the other regimes in terms of the welfare measure. We demonstrate too that the sign of the coe¢ cient next to unemployment in the policy rule depends on the value of workers bargaining power. The third chapter co-authored with Tatiana Damjanovic and Keqing Liu uses the classical cobweb model framework to investigate properties of the transition matrix in the bounded memory econometric OLS-type learning. We de ne memory length as the number of past observations used to form a forecast and analytically prove that for any length, the eigenvalues of the transition matrix lie within the unit circle. In addition, we sketch the proof of stationarity of the cobweb model under bounded memory learning. Furthermore, we investigate the relationship between the volatility of forecasts and the length of memory and nd that shorter memory causes higher variance in both forecasts and estimates of the OLS parameters.
- Published
- 2014
46. Modern Money Theory: rise in the international scenario and recent debate in Brazil.
- Author
-
DEOS, SIMONE, BULLIO MATTOS, OLÍVIA, ULTREMARE, FERNANDA, and RIBEIRO DE MENDONÇA, ANA ROSA
- Subjects
- *
POLITICAL debates , *MACROECONOMICS , *EMPLOYERS - Abstract
This paper has a twofold purpose. The first one is to present the core ideas of MMT. The second one is to explain its recent rise in Brazil after the publication of Andre Lara Resende's articles in the press in 2019 and a book in 2020. In order to do that, the paper is organized as follows. After the introduction, the first session presents the core ideas of MMT: i) chartal money, or tax driven money; ii) functional finance; iii) Minskyan financial fragility; iv) sectoral balances approach; v) employer of last resort. The second session presents some critiques MMT has received both from the orthodox and the heterodox sides at the international level. The third section discusses the particular way in which MMT's ideas have recently arrived in Brazil, considering peculiarities of the Brazilian economic debate and political scenario. The final session brings back the main ideas presented in the paper and raises critics to Lara Resende's contributions from a political economy perspective. [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
- View/download PDF
47. Endogenous uncertainty and monetary policy
- Author
-
ShinHyuck Kang and Kwangyong Park
- Subjects
History ,Shock (economics) ,Economics and Econometrics ,Polymers and Plastics ,Monetary policy ,Business cycle ,Economics ,Monetary economics ,Endogeneity ,Business and International Management ,Industrial and Manufacturing Engineering - Abstract
We empirically investigate how uncertainty endogenously interacts with real activity and monetary policy, and analyze the role of endogeneity in shaping the efficacy of monetary policy using a shock restricted structural vector-auto-regression model. Using the model, we show that both real and financial uncertainty endogenously react to business cycle fluctuations and to monetary policy actions. Then we provide two novel policy implications of endogenous uncertainty. First, a tighter monetary policy reduces financial uncertainty, but heightens real uncertainty. Second, endogeneity channels in uncertainty amplify the real effects of monetary policy.
- Published
- 2023
48. THE IMPACT OF PHYSICAL CAPITAL AND HUMAN CAPITAL (LEVEL OF EDUCATION) ON GROWTH IN INDONESIA
- Author
-
Firman Bunyamin
- Subjects
Distributed lag ,Physical capital ,Higher education ,business.industry ,Economics ,Monetary economics ,Venture capital ,business ,Investment (macroeconomics) ,Policy analysis ,Human capital ,Tertiary sector of the economy - Abstract
The purpose of this study is to investigate, by use of relevant robust econometric modelling, physical capital and human capital, and their impact on growth in Indonesia for policy analysis. The Auto Regressive Distributed Lag (ARDL) by Pesaran and Pesaran (1997) were chosen for supporting the relationship analysis. The important finding for policy analysis is that human capital appears to be a continuing factor shaping Indonesia’s growth, along with physical capital accumulation, with particularly strong effects for human capital arising from tertiary education. Physical capital has shown a strong and significant impact on the growth in the long run and indicates that Indonesia needs long term investment to generate growth. Such investment has distinction which related to sustainable operation such as infrastructure, sophisticated services, and venture capital. Consequently, it requires high skill labour supplied by tertiary education institutions. A further development of tertiary education next to enhancement of investment environment in manufacture and service sector should be set as priority programs in inducing growth.
- Published
- 2023
49. Uniform Pricing as a Barrier to Entry
- Author
-
Youping Li, Hong Feng, and Jie Shuai
- Subjects
Economics and Econometrics ,Financial economics ,Uniform pricing ,Accounting ,Economics ,Price discrimination ,Monetary economics ,Economic surplus ,General Business, Management and Accounting ,Barriers to entry - Abstract
This paper considers an entry game in which an incumbent firm operates in a number of markets and a potential entrant seeks to enter some or all of the markets. While price discrimination has usually been thought of as a barrier to entry, in our model it is not and, on the contrary, we find that charging a uniform price across the markets actually discourages entry. Partial entry occurs when the two firms’ products are highly substitutable. In this case, a ban on price discrimination raises the profits of both the incumbent and the entrant but reduces consumer and total welfare.
- Published
- 2023
50. Bank Competition and Borrower Conservatism
- Author
-
Liya Hou, Sudipta Basu, and Yi Liang
- Subjects
History ,geography ,Loan covenant ,Economics and Econometrics ,geography.geographical_feature_category ,Polymers and Plastics ,Fell ,Monetary economics ,Audit ,Conservatism ,Industrial and Manufacturing Engineering ,Competition (economics) ,Bargaining power ,Shareholder ,Loan ,Accounting ,Business ,Business and International Management ,Finance - Abstract
We study the influence of bank competition on U.S. public borrowers’ accounting conservatism by exploiting the staggered adoption of the Riegle-Neal Interstate Banking and Branching Efficiency Act (IBBEA) of 1994, which increased the threats of new bank entrants and actual bank entry. We find that borrowers’ conditional conservatism fell after IBBEA. Conservatism fell more for firms located in states with weak incumbent banks and states with more out-of-state entrants, especially entrants with better monitoring technologies. The decrease in conservatism partially stems from borrowers’ increased investment and risk-taking incentives. Conservatism fell more for firms relying more on bank loans, especially those that borrowed loans for the first time after IBBEA and for firms having lower dedicated institutional ownership and board independence. We also find that loans included fewer covenants and that bank loan borrowers became less likely to choose Big N auditors and industry specialist auditors after IBBEA. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G21; G28; K23; M41.
- Published
- 2023
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