Central Bank Transparency and the Volatility of Exchange Rates
Stefan Eichler, Helge Littke
Abstract
We analyze the effect of monetary policy transparency on bilateral exchange rate volatility. We test the theoretical predictions of a stylized model using panel data for 62 currencies from 1998 to 2010. We find strong empirical evidence that an increase in the availability of information about monetary policy objectives decreases exchange rate volatility. Using interaction models, we find that this effect is more pronounced for countries with a lower flexibility of goods prices, a lower level of central bank conservatism, and a higher interest rate sensitivity of money demand.
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Career Experience, Political Effects, and Voting Behavior in the Riksbank’s Monetary Policy Committee
Stefan Eichler, Tom Lähner
Economics Letters,
June
2017
Abstract
We find that career experience shapes the voting behavior of the Riksbank’s Monetary Policy Committee (MPC) members. Members with a career in the Riksbank and the government prefer higher rates. During a legislation with a center-right (center-left) party administration, MPC members with a career background in the government favor higher (lower) interest rates. Highlights: • The determinants of voting behavior in the Swedish Riksbank are considered. • Voting is analyzed with random effects ordered logit models for 1999–2013. • Interplay of career experience and political factors shapes voting behavior. • Government or Riksbank background leads to higher interest rate votes. • Partisan voting behavior is detected for members with government background.
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Do Conventional Monetary Policy Instruments Matter in Unconventional Times?
Manuel Buchholz, Kirsten Schmidt, Lena Tonzer
Abstract
This paper investigates how declines in the deposit facility rate set by the European Central Bank (ECB) affect bank behavior. The ECB aims to reduce banks’ incentives to hold reserves at the central bank and thus to encourage loan supply. However, given depressed margins in a low interest environment, banks might reallocate their liquidity toward more profitable liquid assets other than traditional loans. Our analysis is based on a sample of euro area banks for the period from 2009 to 2014. Three key findings arise. First, banks reduce their reserve holdings following declines in the deposit facility rate. Second, this effect is heterogeneous across banks depending on their business model. Banks with a more interest-sensitive business model are more responsive to changes in the deposit facility rate. Third, there is evidence of a reallocation of liquidity toward loans but not toward other liquid assets. This result is most pronounced for non-GIIPS countries of the euro area.
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Mind the Gap: The Difference Between U.S. and European Loan Rates
Tobias Berg, Anthony Saunders, Sascha Steffen, Daniel Streitz
Review of Financial Studies,
Nr. 3,
2017
Abstract
We analyze pricing differences between U.S. and European syndicated loans over the 1992–2014 period. We explicitly distinguish credit lines from term loans. For credit lines, U.S. borrowers pay significantly higher spreads, but lower fees, resulting in similar total costs of borrowing in both markets. Credit line usage is more cyclical in the United States, which provides a rationale for the pricing structure difference. For term loans, we analyze the channels of the cross-country loan price differential and document the importance of: the composition of term loan borrowers and the loan supply by institutional investors and foreign banks.
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The Risk‐Taking Channel of Monetary Policy in the U.S.: Evidence from Corporate Loan Data
Manthos D. Delis, Iftekhar Hasan, Nikolaos Mylonidis
Journal of Money, Credit and Banking,
Nr. 1,
2017
Abstract
To study the presence of a risk-taking channel in the U.S., we build a comprehensive data set from the syndicated corporate loan market and measure monetary policy using different measures, most notably Taylor (1993) and Romer and Romer (2004) residuals. We identify a negative relation between monetary policy rates and bank risk-taking, especially in the run up to the 2007 financial crisis. However, this effect is purely supply-side driven only when using Taylor residuals and an ex ante measure of bank risk-taking. Our results highlight the sensitivity of the potency of the risk-taking channel to the measures of monetary policy innovations.
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Global Food Prices and Monetary Policy in an Emerging Market Economy: The Case of India
Oliver Holtemöller, Sushanta Mallick
Journal of Asian Economics,
2016
Abstract
This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that a big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks.
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Lend Global, Fund Local? Price and Funding Cost Margins in Multinational Banking
Rients Galema, Michael Koetter, C. Liesegang
Review of Finance,
Nr. 5,
2016
Abstract
In a proposed model of a multinational bank, interest margins determine local lending by foreign affiliates and the internal funding by parent banks. We exploit detailed parent-affiliate-level data of all German banks to empirically test our theoretical predictions in pre-crisis times. Local lending by affiliates depends negatively on price margins, the difference between lending and deposit rates in foreign markets. The effect of funding cost margins, the gap between local deposit rates faced by affiliates abroad and the funding costs of their parents, on internal capital market funding is positive but statistically weak. Interest margins are central to explain the interaction between internal capital markets and foreign affiliates lending.
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Much Ado About Nothing: Sovereign Ratings and Government Bond Yields in the OECD
Makram El-Shagi
IWH Discussion Papers,
Nr. 22,
2016
Abstract
In this paper, we propose a new method to assess the impact of sovereign ratings on sovereign bond yields. We estimate the impulse response of the interest rate, following a change in the rating. Since ratings are ordinal and moreover extremely persistent, it proves difficult to estimate those impulse response functions using a VAR modeling ratings, yields and other macroeconomic indicators. However, given the highly stochastic nature of the precise timing of ratings, we can treat most rating adjustments as shocks. We thus no longer rely on a VAR for shock identification, making the estimation of the corresponding IRFs well suited for so called local projections – that is estimating impulse response functions through a series of separate direct forecasts over different horizons. Yet, the rare occurrence of ratings makes impulse response functions estimated through that procedure highly sensitive to individual observations, resulting in implausibly volatile impulse responses. We propose an augmentation to restrict jointly estimated local projections in a way that produces economically plausible impulse response functions.
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