How does the money market development impact the bank lending channel of emerging Countries? A case from China

Transforming from quantitative-based instruments to price-based instruments is the primary goal of the monetary policy transformation in emerging economies. In essence, this process is gradually replacing the interest rate channel with the credit channel from the perspective of the monetary policy transmission mechanism, which is mainly achieved by promoting financial development to reduce the financial friction. However, there are opposite effects of financial development on the bank lending channel; thus, the topic is controversial. Using banks’ data from 2010 to 2018, this paper studies whether and how the money market development weakens the effect of the bank lending channel in China. The result shows that the mechanism through which the money market development influences the bank lending channel is realized by affecting the substitution elasticity of the asset and liability structure of banks’ balance sheets. Different from the theoretical expectation, the effect of the money market development on the bank lending channel is nonsignificant in China but appears to be weakened when the interest rate market-oriented reform is considered. However, further research based on structural analysis demonstrates that the money market development exerts heterogeneous effects on the bank lending channel under different types of sub-markets and different characteristics of the banks considered.     

Does transparency of central banks communication affect credit market? Empirical evidence for advanced and emerging markets

This study examines the effect of the transparency of central banks communication on credit market. In particular, this study investigates how central banks’ effort to provide more detailed information about their objectives regarding the price stability (monetary policy transparency) and financial stability (financial stability transparency) policies are able to mitigate information asymmetry on credit market, through the net interest margin charged by the banks to engage in financial intermediation (credit spread). The findings denote central bank transparency is able to reduce the credit spread. Additionally, the evidence suggests the effect of central bank transparency on the credit spread is greater in emerging markets, where there is less information available on credit market. In brief, transparency in central banks communication is an important tool to mitigate the information asymmetry in the credit market.     

Fed Credit Policy: What is a Lender of Last Resort?

Discussions of the Fed׳s financial crisis lending – and its role as “Lender of Last Resort” more generally – often overlook the distinction between monetary policy and credit policy. Central bank actions constitute monetary policy if they alter the quantity of the bank׳s monetary liabilities, but constitute credit policy if they alter the composition of the bank׳s portfolio without affecting the outstanding amount of monetary liabilities. In the 19th century, Henry Thornton and Walter Bagehot advocated Lender of Last Resort policies as a means of expanding the money supply when the demand for money surged in a crisis. In contrast, the Fed׳s recent crisis lending for the most part left its outstanding monetary liabilities unaffected, and thus represented credit policy, not Lender of Last Resort activity. Credit allocation in a crisis is potentially costly because it affects market participants׳ beliefs about the likelihood of future central bank rescues, which in turn reduces their incentive to protect themselves against financial distress and thus exacerbates financial instability. Credible limits on credit policy thus are critical to central banks׳ core policy mission. One path to establishing such limits is to create “living wills” that detail how to resolve large, complex financial firms without government support.     

Does money help predict inflation? An empirical assessment for Central Europe

This paper investigates the predictive ability of money for future inflation in the Czech Republic, Hungary, Poland and Slovakia. We construct monetary indicators similar to those the European Central Bank regularly uses for monetary analysis. We find in-sample evidence that money matters for future inflation at the policy horizons that central banks typically focus on, but our pseudo out-of-sample forecasting exercise shows that money does not in general improve the inflation forecasts vis-à-vis some benchmark models such as the autoregressive process. Since at least some models containing money improve the inflation forecasts in certain periods, we argue that money still serves as a useful cross-check for monetary policy analysis.     

Finance-neutral potential output: An evaluation in an emerging market monetary policy context

In this paper, output gaps that include financial cycle information are evaluated against policy analysis models used by the Colombian central bank. This is an important feature, since policy-related models are the only relevant yardstick and emerging economies (such as Colombia) have been historically more vulnerable to financial imbalances. Unlike previous works, finance-neutral gaps were evaluated in a monetary policy context exactly as it is routinely performed by a central bank. The distribution of output gap revisions is analyzed and a metric to compare real-time robustness across models is developed. This metric constitutes a novel way to summarize the distribution of real-time uncertainty around output gaps, and policymakers should employ it for comparison purposes. Also, the real-time policy performance of finance-neutral gaps is studied, separating suggested ex post from operational ex ante usefulness. The results suggest that finance-neutral gaps are neither more robust in real time nor more operationally useful than the benchmark estimates. These results have important implications for policymakers and for the relevant literature.     

Central bank disclosure as a macroprudential tool for financial stability

The Basel Capital Accord (pillar 3) states that disclosure of information (transparency) is essential to financial stability. This study analyzes, through inflation reports, the disclosure of information from the Central Bank of Brazil concerning the credit market. We consider credit risk and capital buffers as measures of financial stability in this analysis. Furthermore, in order to measure the perception of the monetary authority on the credit market, we built two indices based on the central bank’s communication on credit development. We performed a panel data analysis based on a sample of 125 banks for the period from June 1999 to September 2014 (7000 observations). The findings suggest that central bank communication regarding expectations concerning the credit market contributes to financial stability. Therefore, this kind of communication of central banks (about credit development) may constitute an important macroprudential tool to improve financial stability.     

商业银行对信贷紧缩的应对与思考

为抑制经济过热等问题,紧缩性货币政策成为目前及未来一段时期内货币政策的必然选择。央行通过对存款准备金率、利率等连续多次调整,明显加大了运用货币政策工具进行宏观调控的力度,同时对商业银行的经营战略和盈利能力也将产生一定的影响。商业银行应积极响应紧缩的货币政策,进一步转变经营理念,积极应对挑战。     

TOWARDS SOUND MONETARY INSTITUTIONS

Most people see money and central banking as shrouded by an impenetrable veil of mystery, as matters that ought to be delegated to expert economists in central banks. Yet the actual performance of central banks has been less than stellar. And there are good reasons to expect unchecked, discretionary monetary policy by central bankers to produce less‐than‐perfect results. Not only do central bankers not have the right incentives and knowledge to make beneficial discretionary decisions, but the economy does not always behave in a predictable fashion, reacting as an automaton to discretionary policy shifts. A market‐based monetary arrangement – such as Friedrich von Hayek's free banking proposal – would be preferable to a national or supranational monopoly on the issue of money. If such an arrangement is not attainable, then it is desirable, at the very least, that the behaviour of central bankers is constrained by rules, such as nominal income growth targets.     

The impact of government intervention on the stabilization of domestic financial markets and on U.S. banks’ asset composition

The 2007–2009 financial crisis that evolved from various factors including the housing boom, aggressive lending activity, financial innovation, and increased access to money and capital markets prompted unprecedented U.S. government intervention in the financial sector. We examine changes in banks’ balance sheet composition associated with U.S. government intervention during the crisis. We find that the initial round of quantitative easing positively impacts bank liquidity across all bank samples. Our results show a positive impact of repurchase agreement market rates on bank liquidity for small and medium banks. We conclude that banks have become more liquid in the post-crisis period, especially the larger banks (large and money center banks). We show that real estate loan portfolio exposures have reverted to pre-crisis levels for money center banks and remained flat for all other bank samples.     

Central Bank or Monetary Authority? Three Views on Money and Monetary Reform

The global financial crisis triggered profound changes in the conduct of monetary policy, with ultra‐low interest rates and asset purchases becoming the main policy tools. This represents a major shift towards interventionism that even ten years after the global financial crisis has not been reversed. In this article, I assess three views on money and monetary reform. I argue that a central bank regime with a narrow focus on refinancing property at market interest rates remains an attractive alternative to the current regime and provides an essential benchmark to assess the progress of monetary normalisation.     

Managed Floating as a Monetary Policy Strategy

Although there seems to be a broad consensus among economists that purely floating or completely fixed exchange rates (the so-called corner solutions) are the only viable alternatives of exchange rate management, many countries do not behave according to this paradigm and adopt a strategy within the broad spectrum of exchange rate regimes that is limited by the two corner solutions. Many of these intermediate regimes are characterized by significant foreign exchange market interventions and a certain degree of exchange rate flexibility with non-preannounced exchange rate targets. While academic research in this area usually concentrates on some specific aspects of intermediate regimes (such as the effectiveness of interventions or institutional aspects), managed floating has rarely been analyzed as a comprehensive monetary policy strategy. In this paper, we present a monetary policy framework in which central banks simultaneously use the exchange rate and the interest rate as operating targets of monetary policy. We explain the mechanics of foreign exchange market interventions and sterilization and we explain why a central bank has an interest of controlling simultaneously the two operating targets. We derive the monetary policy rules for the two operating targets from a simple open economy macro model in which the uncovered interest parity condition and the monetary conditions index play a central role.     

Yield curve responses to market sentiments and monetary policy

Central banks recently started to target longer term interest rates. The empirical failure of the rational expectations theory of the yield curve, however, limits its applicability to monetary policy analysis. The success of agent-based behavioral asset pricing models and behavioral macroeconomic models in replicating statistical regularities of empirical data series motivates to apply them to yield curve modeling. This paper analyses how the interaction of monetary policy and market sentiments shape the yield curve in a behavioral model with heterogeneous and bounded-rational agents. One result is that the behavioral model replicates empirical facts of term structure data. Moreover, it overcomes one major deficiency of rational expectations models of the yield curve in explaining the empirically observed uncertain responses of longer term yields to changes in the central bank rate. These are explained by the behavioral model’s ability to generate different responses of market sentiments to shocks at different times which lead to a variety of interest rate responses. Further results of this paper can be used as policy advice on how central banks can target the level, slope and curvature of the yield curve by targeting market sentiments about inflation and the business cycle.     

基于市场利率波动测度的货币政策操作风险研究

在货币政策操作过程中,中央银行对宏观经济形势的认识偏差,货币政策工具及政策调控时机的选择不当,以及政策信息的披露不及时等,都有可能误导公众预期,增加市场不确定性,从而引致货币政策操作风险。文章通过利用中国货币市场上同业拆借和债券回购的利率数据进行实证,结果表明,中央银行政策操作透明度不高以及对宏观经济形势进行判断的前瞻性不足,是引致我国货币政策操作风险的重要原因。     

金融危机背景下美联储的非常规货币政策操作

面对金融危机，关联储不仅非常规地使用传统货币政策工具，而且还采取大量激进的非常规措施，通过购买各种证券向市场注入流动性以及运用信息沟通引导市场预期降低长期借贷成本的方式缓解金融市场紧缩局面。非常规货币政策是应对非常时期的非常措施，随着经济的复苏，各国经济刺激政策如何寻找安全退出路径是这一时期全球央行的主要任务。     

Monetary policy and asset prices in an open economy

This paper examines whether central banks should respond to asset price fluctuations in a two-country sticky price model. We compare a monetary policy rule that targets both domestic asset prices and foreign asset prices with several alternative monetary policy rules. This paper shows that this policy rule can produce preferable outcomes because the domestic central bank incorporates important information that both domestic and foreign asset prices possess into its monetary policy. Our model suggests that central banks should consider both domestic and foreign asset prices in a two country framework with asset price fluctuations.     

The federal funds market,excess reserves,and unconventional monetary policy

Following the bankruptcy of Lehman Brothers, interbank borrowing and lending dropped, whereas reserve holdings of depository institutions skyrocketed, as the Fed injected liquidity into the U.S. banking sector. This paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows, in an analytically tractable way, how interbank trade and excess reserves emerge in general equilibrium. Investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks, I find that federal funds market participation is irrelevant in response to standard supply and demand shocks, whereas it matters for “uncertainty shocks”, i.e. mean-preserving spreads in the cross-section of liquidity risk. Liquidity injections by the central bank can absorb the effects of financial shocks on the real economy, although excess reserves might increase and federal funds might be crowded out, as a side effect.     

Coordination and non-coordination risks of monetary and macroprudential authorities: A robust welfare analysis

This study compares a central bank’s leaning against the wind approach with a mix of monetary and macroprudential policies under parameter uncertainty in an estimated DSGE model with two financial frictions. We show that uncertainty of the economic environment is an essential constituent in properly designing macroprudential policy. Although coordination between monetary and macroprudential policies minimizes the policymakers’ Bayesian risk, coordination and non-coordination risks threaten the goals of both authorities. The former describes the situation where the authorities partly resign from implementing the monetary policy objectives to stabilize macroprudential risk. The latter is when conducting a non-coordinated macroprudential policy induces higher total Bayesian risk than when only the central bank minimizes the expected total welfare loss. The robust Bayesian macroeconomic rules show that when financial shocks shrink the banks’ or entrepreneurial net worth, a contractionary macroprudential policy should be combined with an expansionary monetary policy. However, if capital adequacy ratio or risk shocks strike the economy, such a conflict in macroeconomics policy instruments disappears, thus synchronizing both policies.     

Do contractionary monetary policy shocks expand shadow banking?

Using VAR models for the USA, we find that a contractionary monetary policy shock has a persistent negative impact on the level of commercial bank assets, but increases the assets of shadow banks and securitization activity. To explain this “waterbed” effect, we propose a standard New Keynesian model featuring both commercial and shadow banks, and we show that the model comes close to explaining the empirical results. Our findings cast doubt on the idea that monetary policy can usefully “get in all the cracks” of the financial sector in a uniform way.     

Monetary Policy and the Stock Market: Theory and Empirical Evidence

This paper gives a comprehensive review of the literature on the interaction between real stock returns, inflation, and money growth, with a special emphasis on the role of monetary policy. This is an area of research that has interested monetary and financial economists for a long time. Monetary economists have been interested in the question whether money has any effect on real stock prices, while financial economists have investigated whether equity is a good hedge against inflation. Empirical studies show that money can be helpful in predicting future stock returns. Empirical evidence also suggest that equity is not a good hedge against inflation in the short run but may be so in the long run. The short-run negative relation between stock returns and inflation can easily be explained by theoretical models. If the central bank conducts a countercyclical monetary policy this will result in a negative relation between inflation and stock returns, while if it conducts a procyclical policy we could observe a positive relation. According to both theoretical and empirical studies investors receive an inflation risk premium for holding equity.     

浅析银行暴利与银行现时股价——基于2012年银行业绩与银行股价分析

银行作为为企业、个人提供资金的金融媒介,在我国社会主义市场经济环境下,扮演着举足轻重的角色。据2012年有关数据显示,一面是银行业绩持续高增长,一面是银行股股价堪比"白菜价"。银行获得了高额利润收入,但是与其现时股价却及其不相匹配。本文就试图分析在银行业绩大幅度增长同时,银行股价却表现低迷的原因。