Central Bank Balance Sheet Policies and Inflation Expectations

We analyse the empirical effects of credit easing and quantitative easing on inflation expectations and exchange rates. Both monetary policy strategies are summarised in measures for composition and size of the central bank balance sheet and are included in a VAR model. The results show that changes in balance sheet size had positive, albeit weak effects on inflation expectations in Japan, while the effects were negligible in the euro area. By contrast, an increasing balance sheet size is associated with reduced short-term inflation expectations in the US and UK, pointing at negative signalling effects. Shocks to balance sheet size or composition have no substantial effects on long-term inflation expectations in the euro area, US and UK. An expanding balance sheet size is associated with a depreciation of the euro, pound sterling and Japanese yen.     

美国量化宽松政策对亚太新兴市场国家的影响

量化宽松是美联储在通货紧缩下所采取的一种直接创造货币、扩大央行资产负债表规模的非传统货币政策。量化宽松将给我国等新兴市场国家造成较大的负面效果,建议采取临时性资本管制、针对性量化政策、建立区域货币离岸市场、加快经济结构转型等对策来应对。     

The transmission mechanism of monetary policy in Japan: Evidence from banks' balance sheets

We examine how banks' responses to monetary policy vary according to their balance sheet using Japanese bank data from 1975 to 1999. We find that the effect of monetary policy on lending is stronger for banks that are smaller, less liquid, and more abundant with capital. The effects of bank balance sheet on monetary transmission are different by bank types, policy stances and borrowers' industries. Our results imply that a lending channel of monetary transmission exists, that the effect of expansionary monetary policy is attenuated if banks' capital is scarce, and that the effect of monetary policy on the allocation of funds depends on banks' balance sheets. J. Japanese Int. Economies 20 (3) (2006) 380–405.     

Monetary Policy and Borrowers’ Loan Defaults: Research Based on Data from Renrendai

This paper uses Renrendai data to study the relationship between monetary policy and the default behavior of borrowers, and analyzes the transmission channels. The research shows that tight monetary policy will lead to a significant increase in a borrower's probability to default, and this effect will continue for several months. There may be two transmission channels: (i) monetary policy changes a debtor's liquidity through credit and balance sheet channels, which directly affects their current repayment behavior; and (ii) monetary policy may affect a borrower's investment, production and profitability, thus changing their long‐term solvency. The paper also finds that the repayment behavior of productive borrowers is more susceptible to monetary policy than consumptive borrowers, and that the default behavior of borrowers in coastal provinces is more susceptible to monetary policy than of borrowers in inland provinces. These findings provide new evidence for understanding how monetary policy affects individual behavior and its transmission mechanisms.     

中国货币政策行业非对称效应研究——基于30个行业面板数据的实证研究

本文沿银行信贷、资产负债表和相对价格三条货币政策传导渠道,从理论上分析货币政策行业非对称效应的形成机理;并基于30个典型行业月度面板数据、分四个递进层次建立实证模型检验理论结果。研究发现,行业间特征差异显著,货币政策冲击经传导后对各行业影响程度差别非常之大;行业运营资本比重、银行信贷依赖程度、财务杠杆水平和劳动密集程度越高以及行业内公司的平均规模越小,受货币政策的冲击越大。把握货币政策行业非对称效应的规律并发挥政策在调结构方面的作用,对于中央银行有较强的现实意义。中小型公司和劳动密集型行业受政策影响最大,紧缩性货币政策会加剧中国的失业问题。中央银行应尽可能提高政策的针对性和灵活性,配合信贷政策在总量和结构上调控经济。     

Macroeconomic effects of financial stress and the role of monetary policy: a VAR analysis for the euro area

This paper analyses an otherwise standard macro-financial VAR model for the euro area that includes - apart from conventional measures of output, inflation and monetary policy - a composite indicator of systemic financial stress, namely the CISS index, and total assets of the ECB balance sheet capturing the stance of unconventional monetary policy. I find that the CISS contributes significantly to the dynamics of the macroeconomy and exerts a strong influence on monetary policy when looking at both policy rates and the ECB balance sheet. The significance of the CISS appears robust to the inclusion of a broad set of real and financial control variables. Based on tests of direct versus indirect (Granger-)causality patterns proposed in Hsiao (1982), I also find that unlike unconventional policy as measured by ECB balance sheet growth, the policy rate does not seem to react directly to variations in financial stress but rather indirectly through the impact of financial stress on macroeconomic conditions. These different patterns of reaction are broadly consistent with the ECB’s “separation principle”. The estimated effects of the ECB’s standard and non-standard policy measures on inflation and economic growth are moderate, although an easier stance in both policy tools helps calm down financial stress.     

Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa

This paper assesses the effect of US monetary policy on South Africa during the period 1990–2018. We separately analyse and compare the effect of conventional monetary policy, before the Global Financial Crisis, and unconventional monetary policy, after the US monetary policy reached the zero-lower bound. Our impulse response function results indicate that monetary policy in South Africa responds mainly to local inflation, economic activity and financial conditions. While there is strong correlation between the global and South African financial cycle, the financial cycle is not transmitted to the real economy because of the sluggish response of industrial production and domestic credit, especially after the global financial crisis. We see this as an indication of the effects of structural issues to the real economy and constrained households’ balance sheet which has prevented the local economy to take advantage of low local interest rates and the global economic recovery after the crisis.     

The Future of European Monetary Integration

This article discusses the immediate and the longer-term future of monetary policy. It first reviews the policies adopted by central banks in the wake of the financial crisis, focusing on balance sheet policies and forward guidance, and then discusses the exit from these policies and the associated challenges. Finally, an outlook on the possible long-term design of monetary policy is provided.     

Financial Deregulation and the Bank Lending Channel in Developing Countries: The Case of Indonesia

The dominant role of commercial banks as a source of finance and the considerable asymmetry of information in financial markets in developing countries have raised an argument that the bank lending channel of monetary transmission mechanism would be very important in such countries. This study addresses the issue by investigating empirically whether there are differential effects of monetary policy on banks' balance sheets, and its implications to the existence of the bank lending channel of monetary policy in Indonesia, especially since the early 1980s when the government adopted a policy of financial deveculation. We find significant differences of balance sheet behaviour across bank classes in response to a change in monetary policy, consistent with the predictions of the bank lending view. We also found that because of access to foreign funds and the existence of bank loan commitment, the monetary policy was unable to constrain loan supply by the large (state) banks, indicating that the bank lending channel operates through smaller (non-state) banks.     

Sectoral Effects of Monetary Policy: The Evidence from Publicly Traded Firms

This article examines the impact of monetary policy on net sales of publicly traded firms in various sectors of the U.S. economy. We find that monetary policy has a heterogeneous effect on firms in different industries, with the strongest effect on firms in Retail and Wholesaling. Balance sheet characteristics, especially size, influence the impact of policy. Larger firms in several industries are able to mitigate the effect of policy. We find mixed results for firms' working capital, short‐term debt ratio, and leverage ratio with respect to the operation of the credit channel of monetary transmission mechanism.     

美联储货币政策对中国货币政策的溢出效应研究

文章主要研究了美国货币政策对中国货币政策的溢出效应,理论部分分析了在开放经济条件下两国模型关于货币政策跨国传输等相关问题。货币供给分为国内供给和外部输入,通过中央银行资产负债表中资产负债的变化可以分析外部货币的输入影响到基础货币的被动投放,在流通过程中由于乘数效应影响了货币供给量。外部货币的输入影响央行调控独立性的发挥,外部货币的输入容易形成对国内货币市场和产品市场某种程度的冲击,央行货币政策调控的难度增加。经验分析发现,美元输入对中国货币政策存在溢出效应,影响到中国的基础货币投放,影响到中国的货币政策的独立性以及执行的效果。     

Monetary policy transmission through the bank lending channel in Thailand

This paper investigates the strength of the bank lending channel in the transmission of monetary policy in Thailand. Bank behavior is captured by quarterly balance sheet data for ten commercial banks of diverse size for the period 2007-2016. Based on a flexible form profit function, bank supply and demand equations are estimated that capture lending and funding choices. The estimation results are used to derive time-dependent supply and demand elasticities which are then combined with estimates of pass-through from the policy rate to retail rates to simulate the dynamic impact of a monetary tightening on bank portfolio allocations. Due to pass-through differentials among retail interest rates, an increase in the policy rate is shown to raise the cost of loan-production relative to the return on loans, thereby motivating banks to contract their lending. Small banks show a greater degree of loan contraction than large banks because large banks are better able to fund continued lending through debt issuance. Because the Thai economy relies heavily on bank loans, these findings suggest that the bank lending channel is an important conduit for the transmission of monetary policy in Thailand.     

THE DEMOCRATIC DEFICIT AND INFLATION TARGETING

There is widespread consensus that a goal dependent, but instrument independent central bank solves the democratic deficit. However, the standard solution to the democratic deficit risks reintroducing the biases of political control over monetary policy through the power of politicians to change the monetary policy rule. This paper considers the problem as an instance of the paradox of power in the sphere of monetary policy and proposes a solution drawing on criteria for the rule of law and the principles of constitutional economics. Finally a normative test of inflation targeting is proposed, again drawing on the constitutional economics literature.     

Bank loans and the effects of monetary policy in China: VAR/VECM approach

In this paper, we test the differential effects of monetary policy shock on aspects of banks' balance sheets (deposits, loans, and securities) across bank categories (aggregate banks, state banks, and non-state banks) as well as on macroeconomic variables (output, consumer price index, exports, imports, and foreign exchange reserves). We do so by estimating VAR/VEC Models to uncover the transmission mechanisms of China's monetary policy. Also we identify the cointegrating vectors to establish the long-run relationship between these variables. By using monthly aggregate bank data and disaggregated data on bank and loan types from 1996 to 2006, our study suggests the existence of a bank lending channel, an interest rate channel and an asset price channel. Furthermore, we discuss and explore the distribution and growth effects of China's monetary policy on China's real economy. In addition, we investigate the effects of China's monetary policy on China's international trade. Finally, we identify the cointegrating vectors among these variables and set up VEC Models to uncover the long-run relationships that connect the indicators of monetary policy, bank balance sheet variables and the macroeconomic variables in China.     

International Financial Adjustment for China： A Financial Valuation Approach

International financial adjustment is the process whereby valuation shifts from asset price and currency changes result in relatively durable net wealth transfers across countries' international balance sheets. This paper applies a financial valuation approach to estimate the direction and the broad extent of recent international financial adjustments on China's international balance sheet. We estimate China's international balance sheet losses resulting from the valuation shifts over the period 2005–2010 and reveal that international currency shifts over the past decade have also generated a range of non‐balance sheet financial and monetary adjustment pressures for China. This paper also evaluates how China's evolving international financial policy arrangements could better mitigate China's exposure to international financial adjustments. These arrangements include a more effective currency mechanism and the mechanisms to internationalize the RMB to buffer international financial valuation shocks.     

Europe’s hard fix: the Euro area

One of the most important economic policy issues is the selection of exchange rate regime. The possible choices range from the hard peg to a freely floating nominal exchange rate. Since the early 1990s a move towards the two corners of the exchange rate regime spectrum has been observed, especially in Europe with the creation of EMU. The move towards the corners is discussed from the perspective of Mundell’s “impossible trinity” which states that among the three desirable objectives (1) stabilisation of the exchange rate, (2) free international capital mobility, and (3) an effective monetary policy oriented towards domestic goals, only two can be mutually consistent. Issues related to economic integration and EMU are reviewed, focusing on the famous question: Does one size fit all? Since monetary union raises some interesting issues of political nature, not present in other exchange rate arrangements, the paper ends with a discussion about some political aspects of monetary union.     

Is the US quantitative easing more effective than China's? A second thought

We study the balance sheet of the People's Bank of China and the Federal Reserve Bank in a historical context and analyze whether the recent round of global expansionary monetary policy has been effective in achieving its desired economic effects. In particular, we focus on the roles played by excess reserves, monetary aggregates and financing to the real economy and highlight the tension between a liquid financial sector and an illiquid real sector. We show that, while both China and the US have followed reserve-driven growth strategies, the compositions and relative sizes of these quantities are quite different. In relative terms, excess reserves and lackluster corporate lending constitute a big problem for the US, whereas for China the pertinent question is how to further mobilize funds tied up in the real estate and stock market. We provide some thoughts on possible solutions to the current policy dilemma at the end.     

Too Many Cooks? Committees in Monetary Policy

How many people should decide monetary policy? In this article, we take an empirical perspective on this issue and analyze the relationship between the number of monetary policy decision makers and monetary policy outcomes. Using a new data set that characterizes central bank monetary policy committees (MPCs) in more than 30 countries from 1960 through 2006, we find a U‐shaped relationship between MPC size and inflation; our results suggest that the lowest level of inflation is reached at MPCs with an intermediate size of about five to nine members. Similar results are obtained for inflation variability. Other MPC characteristics also matter for monetary policy outcomes, though to a smaller degree. For instance, the membership composition of the MPC as well as the frequency of MPC membership turnover appears to affect economic variables.     

Postwar monetary policy

Summary Monetary policy has played an active role in Dutch postwar economic policy. Essentially, it has sought to contribute to balanced economic growth by controlling the money supplyM ₂ in relation to national income. Policy measures extend to all sources of money creation-viz. bank credit, public sector finance and the balance of payments - and are predominantly of the quantitative type. This is reflected, among other things, in medium-term targets for the structure and outcome of the balance of payments and the size and coverage of the public sector's borrowing requirement. Internationally, the Netherlands favour and participate in stable exchange rate systems. This has not led to serious conflicts with domestic monetary objectives until the seventies, when excessive easing of monetary conditions had to be accepted temporarily.     

货币政策不确定性与企业现金持有——现金股利视角的新解释

研究利用中国A股上市公司样本,系统探讨了货币政策不确定性对企业现金持有策略的影响.研究发现:随着货币政策不确定性的提高,企业现金持有水平降低.深入研究发现货币政策不确定性对企业现金持有策略的影响主要通过现金股利渠道发挥作用,即在货币政策不确定性较高时期,企业持有的现金更多用于支持现金股利分配,籍此向市场传递积极信号.进一步研究排除了投资机会与代理成本等潜在干扰因素的影响,并且结合产权性质差异的分析发现货币政策不确定性对于非国有企业现金持有策略的影响更为明显.研究一方面基于不确定性视角为货币政策如何影响企业现金管理策略提出了新解释——现金股利渠道,有助于更好地理解我国上市公司的现金持有策略;另一方面也说明货币政策频繁调整所导致的货币政策不确定性很可能是加剧实体经济经营风险的宏观诱因.