Unconventional monetary policies and the corporate bond market

The paper uses a reduced-form vector autoregressive framework to study the effects of quantitative easing and operation “twist”, as well as a conventional monetary expansion, on corporate bond yields and spreads. We construct rating- and maturity-based weekly bond portfolios using TRACE and simulate monetary policies as shocks to the Treasury yield curve. We find that none of the policies can persistently lower corporate spreads, and that operation twist is the only policy capable of lowering corporate yields. This latter finding can be accounted for by the operation twist’s ability to keep the monetary base constant and, therefore, to flatten the riskless yield curve without generating inflationary expectations.     

新冠肺炎疫情、金融市场震荡与金融危机

新型冠状病毒感染肺炎疫情在全球快速蔓延后,美国等国家金融市场出现大幅度震荡,历史罕见。金融市场震荡是疫情影响投资者信心,金融市场本身的风险需要释放,以及经济基本面悲观预期等因素共同作用的结果。目前来看,疫情对实体经济造成冲击,疫情应对情况也在很大程度上决定了金融市场震荡是否演化为全球金融危机,国外金融市场震荡对国内金融市场的传导需要审慎理性处理。     

Forecasting using heterogeneous panels with cross-sectional dependence

In this paper, we focus on forecasting methods that use heterogeneous panels in the presence of cross-sectional dependence in terms of both spatial error dependence and common factors. We propose two main approaches to estimating the factor structure: a residuals-based approach, and an approach that uses a panel of auxiliary variables to extract the factors. Small sample properties of the proposed methods are investigated through Monte Carlo simulations and applied to predict house price inflation in OECD countries.     

Fiscal and monetary interdependence

Where classical economics integrates the quantity theory of money with the concept of Ricardian equivalence, the tendency of recent macroeconomic presentations is to focus either upon money and inflation or upon taxation and debt. That neglect of classical monetary–fiscal integration is surprising, given an initiative by the International Monetary Fund that set credit, money, and fiscal policy within a single structure. This article places those ‘credit counterparts of broad money’ in the context of the Great Depression and the recent global financial crisis. The upshot is a set of conclusions: that, to counter the prospect of deflation, quantitative easing is a weak policy response; that fiscal deficits are better; and that cuts in taxation are preferable to increased government spending.     

Multiperiod Loans,Occasionally Binding Constraints,and Monetary Policy: A Quantitative Evaluation

We introduce multiperiod mortgage loans, fixed interest rate, a lower bound constraint on newly granted loans, and a possibly slack collateral constraint, in an otherwise standard Dynamic Stochastic General Equilibrium (DSGE) model with housing. Our nonlinear estimation shows that all those features are important to understand the evolution of mortgage debt during the recent U.S. housing market boom and bust. The transmission of monetary policy becomes dependent on the housing cycle, with weaker effects when house prices are high or start falling sharply. Higher average loan duration makes monetary policy less effective, eventually leading to asymmetric responses to positive and negative monetary shocks.     

Unconventional monetary policy and stock repurchases: Firm-level evidence from a comparison between the United States and Japan

This paper is the first comparative study examining the determinants of stock repurchases during the period of unconventional monetary policy. By constructing a vast firm-level dataset of the U.S. and Japan and conducting multivariate Tobit and probit analyses, this paper presents evidence that during the period of unconventional monetary policy, in both the U.S. and Japan, firms with more free cash flow and lower borrowing costs are more likely to repurchase stock, firms with higher financial leverage are more likely to abstain from stock repurchases, and firms coordinate dividends and stock repurchases to please shareholders. I also find striking contrasts between the results of U.S. and Japanese firms, and show the importance of financial structure in explaining the contrasting results. From a micro perspective, this paper provides new insight and evidence to support the view that financial structure should be thought of as an important factor determining the effects of unconventional monetary policy.     

Is the unemployment–inflation trade-off still alive in the Euro Area and its member countries? It seems so

The unemployment–inflation trade-off can be interpreted as a proposition concerning the response of these two variables to aggregate demand shocks. In this paper, we study the possible presence of the trade-off in the Euro Area and in a wide group of Euro-area countries in the last 20 years, that is, since the start of EMU. We use the structural VAR methodology that allows the separation between supply and demand shocks. Our main finding is that the existence of a trade-off is largely confirmed both at the Euro Area and at the national level. Nevertheless, the size of the trade-off, measured at different horizons, shows some heterogeneity among countries. No less important, when we augment the VAR model by introducing monetary policy in the context of an open economy, we find that monetary policy shocks push inflation and unemployment in opposite directions in the currency area. Another interesting result concerns the evidence of a relatively flat relation between unemployment and inflation, conditionally to monetary policy shocks. The bulk of these conclusions seem to be confirmed by a number of robustness checks.     

The Role of Inflation Target Adjustment in Stabilization Policy

How and under what circumstances can adjusting the inflation target serve as a stabilization-policy tool and contribute to welfare improvement? We answer these questions quantitatively with a standard New Keynesian model that includes cost-push-type shocks. Our proposed inflation target rule calls for the target to be adjusted in a persistent manner and in the opposite direction to the realization of a cost-push shock, which is essentially a makeup strategy. The inflation target rule, combined with a Taylor-type rule, significantly reduces inflation fluctuations originating from cost-push shocks and mitigates the stabilization trade-off, resulting in a similar level of welfare to that associated with the Ramsey optimal policy.     

Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation

This study investigates how unexpected announcements in Brazilian and U.S. macroeconomic indicators affect the term structure of nominal interest rates, as well as implicit inflation expectations and real interest rates. Using daily data from March 2005 to December 2012, we employ an extended Vector Error Correction Model to take into account nonstationarity and the long-term equilibrium among different maturities of those curves. We found empirical evidence that macroeconomic surprises, domestic (Brazilian) and external (U.S. American), which lead the market to believe that there might be a higher risk of inflation or an overheated economy, raise nominal interest rates, implicit expected inflation and real interest rates. Surprisingly, in relation to the efficient-market hypothesis, we found that some macroeconomic surprises have a lagged effect on the yield curves. We also tested the impact of the global financial crisis of 2007–09 and found that the crisis affected significantly the direction and magnitude of the responses to macroeconomic news.     

Does Money Matter in Shaping Domestic Business Cycles? An International Investigation

We study the contribution of money to business‐cycle fluctuations in the United States, the United Kingdom, Japan, and the euro area using a small‐scale structural monetary business cycle model. Constrained likelihood‐based estimates of the parameters are provided and time instabilities analyzed. Real balances are statistically important for output and inflation fluctuations. Their contribution changes over time. Models giving money no role provide a distorted representation of the sources of cyclical fluctuations, of the transmission of shocks, and of the events of the last 40 years.