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Intensive and Extensive Margins of Labor Supply in HANK: Aggregate and Disaggregate Implications Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-03-08 EUNSEONG MA
This paper studies how adjustment along intensive and extensive margins of labor supply affects aggregate and disaggregate effects of monetary policy. To this end, I develop a heterogeneous‐agent New Keynesian (HANK) economy where a nonlinear mapping from hours worked into labor services generates operative adjustment along intensive and extensive margins of labor supply. I find that monetary policy
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Price Stickiness Heterogeneity and Equilibrium Determinacy Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-03-07 JAE WON LEE, WOONG YONG PARK
Monetary policy can achieve equilibrium determinacy with considerably weak responses to inflation under price stickiness heterogeneity. The result holds in a sticky‐price model with the constant elasticity‐of‐substitution aggregator and no trend inflation, and with a variable elasticity‐of‐substitution aggregator and historical trend inflation. The evidence in favor of the view that the U.S. economy
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Foreign Exchange Intervention: A Data Set of Official Data and Estimates Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-03-01 GUSTAVO ADLER, KYUN SUK CHANG, RUI C. MANO, YUTING SHAO
A better understanding of foreign exchange intervention (FXI) is often hindered by the lack of data. This paper provides a new data set of FXI covering a large number of countries since 2000 at monthly and quarterly frequencies. It includes published official data for about 40 countries as well as carefully constructed estimates for 122 countries. Estimates account for a wide range of central bank
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Social Learning and Monetary Policy at the Effective Lower Bound Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-03-01 JASMINA ARIFOVIC, ALEX GRIMAUD, ISABELLE SALLE, GAUTHIER VERMANDEL
This paper develops a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation‐less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchoring to the central bank (CB)'s target and coordinate on particularly persistent below‐target paths. The welfare cost associated with persistent
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The Deflationary Bias of the ZLB and the FED's Strategic Response Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-02-29 ADRIAN PENALVER, DANIELE SIENA
The paper shows, in a simple analytical framework, the existence of a deflationary bias in an economy with a low natural rate of interest, a zero lower bound (ZLB) constraint on nominal interest rates and a discretionary Central Bank (CB) with an inflation mandate. The presence of the ZLB prevents the CB from offsetting negative shocks to inflation whereas it can offset positive shocks. This asymmetry
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Caution: Do Not Cross! Distance to Regulatory Capital Buffers and Corporate Lending in a Downturn Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-02-17 CYRIL COUAILLIER, MARCO LO DUCA, ALESSIO REGHEZZA, COSTANZA RODRIGUEZ D'ACRI
While banks are expected to draw down regulatory capital buffers in case of need during a crisis, we find that banks kept at a safe distance from regulatory buffers during the pandemic by procyclically reducing corporate lending. By exploiting granular credit register data, we show that banks with little capital headroom above their buffers reduced credit supply and that this behavior was amplified
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The Rationality Bias Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-02-15 TIM HAGENHOFF, JOEP LUSTENHOUWER, MIKE TSIONAS
We analyze differences in consumption and wealth in an estimated New Keynesian model with rational and boundedly rational households. Shocks are shown to cause consumption and wealth heterogeneity due to the “rationality bias” of boundedly rational households. This bias can be decomposed into three components, which, for certain specifications of monetary policy, can exactly offset each other. Moreover
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Housing, Distribution, and Welfare Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-02-14 NOBUHIRO KIYOTAKI, ALEXANDER MICHAELIDES, KALIN NIKOLOV
Housing is a long-lived asset whose value is sensitive to variations in expectations of long-run growth rates and interest rates. When a large fraction of households has leverage, housing price fluctuations cause large-scale redistribution and consumption volatility. We find that a practical way to insure the young and the poor from the housing market fluctuations is through a well-functioning rental
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The Effects of Regulatory Office Closures on Bank Behavior Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-02-11 IVAN LIM, JENS HAGENDORFF, SETH ARMITAGE
We investigate if the decentralized structure of regulatory office networks influences supervisory outcomes and bank behavior. Following the closure of an office, banks previously supervised by that office increase their lending and risk-taking. As a result, affected banks have larger loan losses and higher failure rates during the 2008–09 financial crisis. Analysis of the channels suggests that proximate
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Trade-Off Theory for Dual Holders Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-01-22 SNORRE LINDSET, GUTTORM NYGÅRD, SVEIN-ARNE PERSSON
A dual holder simultaneously owns (private) debt and equity in the same firm. Private debt has a tax advantage, a positive cashflow, which incentivizes its use. This cashflow leads to a lower net cost of debt, which again reduces default risk as well as the cost of external debt. The usual trade-off between tax benefits and bankruptcy costs is altered. Debt priority affects both financing and default
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Digging Deeper—Evidence on the Effects of Macroprudential Policies from a New Database Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-01-22 ZOHAIR ALAM, ADRIAN ALTER, JESSE EISEMAN, GASTON GELOS, HEEDON KANG, MACHIKO NARITA, ERLEND NIER, NAIXI WANG
This paper introduces a comprehensive database of macroprudential policies, which covers 134 countries from January 1990. Using a novel numerical indicator of the tightness of loan-to-value (LTV) regulations, we estimate the policy effects of incremental tightening in LTV limits, employing a propensity score–based method to address endogeneity concerns. The results point to economically significant
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Determinacy and E-Stability with Interest Rate Rules at the Zero Lower Bound Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-01-21 YUNJONG EO, NIGEL MCCLUNG
We evaluate and compare alternative interest rate rules, namely, average inflation targeting (AIT), price-level targeting (PLT), and traditional inflation targeting rules, in a standard New Keynesian model that features recurring, transient zero lower bound regimes. We use determinacy and expectational stability (E-stability) of equilibrium as the criteria for stabilization policy. We find that PLT
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Precautionary Money Demand in a Cash-in-Advance Model Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-01-21 SERGIO SALAS
While numerous studies in monetary economics explore inflation, interest rates, stock returns, and money velocity, a model seamlessly linking these interactions remains elusive. One crucial omission in this literature is idiosyncratic precautionary money demand, a prominent feature in the data. This paper addresses this gap by presenting a simple model where precautionary money demand arises from heterogeneous
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A Test of the Permanent Income Hypothesis When Households are Less Constrained Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2024-01-07 EMMA AISBETT, MARKUS BRUECKNER, RALF STEINHAUSER, RHETT WILCOX
In 2009, the Australian Government delivered approximately $8 billion in direct payments to households. These payments were randomly allocated over a 5-week period. Panel model estimates show that for the average household, there was no significant disbursement effect on nondurable consumption. Only for relatively young and low-income households, for example, at the bottom 10th percentile of each,
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Capturing Macro-Economic Tail Risks with Bayesian Vector Autoregressions Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-27 ANDREA CARRIERO, TODD E. CLARK, MASSIMILIANO MARCELLINO
Many studies using quantile regressions (QRs) have found that downside risk to output growth varies more than upside risk. We show that Bayesian vector autoregressions (BVARs) with stochastic volatility are able to capture tail risks in forecast distributions. Even though the one-step-ahead conditional predictive distributions from the conventional stochastic volatility specification are symmetric
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Unconventional Monetary Policy and Long-Term Interest Rates Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-22 TAO WU
This paper constructs a survey-based measure capturing the evolution of market's expectations of the Federal Reserve's Large-Scale Asset Purchases (LSAP) program during 2008–18, and examines the transmission mechanism of unconventional monetary policy. Estimation results suggest that both signaling and portfolio balance channels of the LSAP were important in lowering long-term interest rates; Moreover
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Financial Development and Innovation: The Role of Market Structure* Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-20 XIAOYANG ZHU, JAEBEOM KIM
We assess how financial development affects innovation. For this purpose, we employ a unique Research Quotient data set from 1980 to 2018, and observe significant inverted-U effects of financial development on innovation for equity and credit markets. Specifically, the effects of the markets are sector-specific, implying that the inverted-U effect of the equity market on innovation is mainly driven
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How Well Does Uncertainty Forecast Economic Activity? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-20 JIAWEN XU, JOHN ROGERS
We evaluate the forecasting ability of several popular measures of uncertainty. We construct new real-time versions of both macro-economic and financial uncertainty, and analyze them together with their ex post counterparts. We find some explanatory power in all uncertainty measures, with relatively good performance by ex post macro-economic and financial uncertainty. However, real-time versions perform
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What Do (and Don't) Forecasters Know About U.S. Inflation? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-18 JANE RYNGAERT
This paper contributes to and extends our current understanding of information frictions in expectations. I first propose a new framework for estimating noisy information using individual forecasts. I further extend this framework to incorporate misperceptions on the part of economic agents about the persistence of the underlying process being forecasted. Applying this framework to the U.S. inflation
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Contingent Contracts in Banking: Insurance or Risk Magnification? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-17 HANS GERSBACH
What happens when banks compete with deposit and loan contracts contingent on macro-economic shocks? The private sector insures the banking system efficiently against crises through such contracts when failing banks go bankrupt. When risks are large, banks may shift part of the risk to depositors who receive state-contingent contracts. In contrast, when failing banks are rescued, new phenomena such
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Did High Leverage Render Small Businesses Vulnerable to the COVID-19 Shock? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-10 FALK BRÄUNING, JOSÉ L. FILLAT, J. CHRISTINA WANG
Using supervisory data on small and midsized nonfinancial enterprises (SMEs), we find that those SMEs with higher leverage faced tighter constraints in accessing bank credit after the COVID-19 outbreak in spring 2020. Specifically, SMEs with higher pre-COVID leverage obtained a smaller volume of new loans and had to pay a higher spread on them during the pandemic period. Consistent with an inward shift
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Gross Worker Flows over the Life Cycle Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-06 TOMAZ CAJNER, İLHAN GÜNER, TOSHIHIKO MUKOYAMA
We analyze the gross worker flows over the life cycle by constructing a quantitative general equilibrium model. Using U.S. data, we first document the life-cycle patterns of flows across different labor market states (employment, unemployment, and not in the labor force), as well as job-to-job transitions. We then build a model of the aggregate labor market that incorporates the life cycle of workers
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Forbearance versus Foreclosure in a General Equilibrium Model Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-06 BIANCA BARBARO, PATRIZIO TIRELLI
In a business cycle model with endogenous firms' dynamics and debt renegotiation, we show that during financial crises loan forbearance does not harm the economy unless banks imperfectly monitor loans, and loan opacity worsens banks' moral hazard problem. Aggressive interest rate reductions and quantitative easing limit defaults and financial crisis-induced output contractions without hampering the
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Estimating a Behavioral New Keynesian Model with the Zero Lower Bound Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-06 YASUO HIROSE, HIROKUNI IIBOSHI, MOTOTSUGU SHINTANI, KOZO UEDA
We estimate a New Keynesian model incorporating two notable features: bounded rationality and the zero lower bound on the nominal interest rate. Our Bayesian estimation of a nonlinear model shows that the model with bounded rationality better fits the U.S. data than its rational expectations counterpart, and that both households and firms exhibit a substantial degree of bounded rationality. Moreover
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The Matching Function and Nonlinear Business Cycles Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-05 JOSHUA BERNSTEIN, ALEXANDER W. RICHTER, NATHANIEL A. THROCKMORTON
The Cobb-Douglas matching function is ubiquitous in labor search and matching models, even though it imposes a constant matching elasticity that is unlikely to hold empirically. To examine the implications of this discrepancy, this paper uses a general constant returns to scale matching function to derive conditions that show how the cyclicality of the matching elasticity affects the shape of the job
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Parameterizing Debt Maturity Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-12-04 PHILIP BARRETT, CHRISTOPHER JOHNS
We examine ways to describe the maturity structure of public debts using few parameters. We compile a novel data set of all promised future payments for U.S. and UK government debt from every month since 1869, and more recently for Peru, Poland, Egypt, and Nigeria. We show there is a unique parametric form which does not arbitrarily restrict debt issuance. We use this model to parsimoniously describe
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Can Repatriation Tax Holidays Teach Us Something About Monetary Policy Transmission? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-29 ESTEBAN ARGUDO
I study the “bank lending channel” using the 2004 repatriation tax holiday as a natural experiment. I isolate the effect of the repatriated funds on loan supply by (i) comparing the differences in lending between multinational and domestic banks pre- and postrepatriation and (ii) using the change in cash holdings abroad as an instrument for the repatriated funds. My results support the existence of
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Flight to Safety or Liquidity? Dissecting Liquidity Shortages in the Financial Crisis Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-23 FENG DONG, YI WEN
We differentiate the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bonds into a “liquidity premium” (flight to liquidity) and a “safety premium” (flight to quality) over the business cycle. When calibrated to match the U.S. aggregate output fluctuations and bond premiums, the model
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From Fixed-Event to Fixed-Horizon Density Forecasts: Obtaining Measures of Multihorizon Uncertainty from Survey Density Forecasts Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-23 GERGELY GANICS, BARBARA ROSSI, TATEVIK SEKHPOSYAN
The U.S. Survey of Professional Forecasters produces precise and timely point forecasts for key macro-economic variables. However, the accompanying density forecasts are mostly conducted for “fixed events.” For example, in each quarter, panelists predict output growth and inflation for the current calendar year and the next, hence the forecast horizon changes with each survey round. This limits the
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Geopolitical Risk and Investment Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-03 XINJIE WANG, YANGRU WU, WEIKE XU
Using a news-based index of geopolitical risk (GPR), we document a strong negative relationship between firm-level corporate investment and GPR. When the GPR index doubles, next-quarter investment declines by 14% of its sample mean. The effect is more pronounced for firms with more irreversible investment or higher market power, confirming the real options theory. However, the effect is less significant
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Money and Credit Coexistence, Excess Capacity, and the Size of Monetary Aggregates Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-03 ALESSANDRO MENNUNI
This paper develops a model where money is demanded in excess of spending needs. As a result, money coexists with large availabilities of credit and the model explains the levels of monetary aggregates held in modern economies via the endogenous creation of inside money. At the heart of the model, there is a search friction in the goods market, which generates spare production and spending capacity
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The Impact of Credit Market Sentiment Shocks Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-02 MAXIMILIAN BOECK, THOMAS O. ZÖRNER
This paper investigates the role of credit market sentiment and investor beliefs in credit cycle dynamics and their transmission to businesscycle fluctuations. Using U.S. data from 1968 to 2014, we find that credit market sentiment is indeed able to detect asymmetries in a small-scale macroeconomic model. An unexpected credit market sentiment shock has different impacts in an optimistic and pessimistic
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Reservation Rates in Interbank Money Markets Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-11-02 EDOARDO RAINONE
This paper proposes a dyadic econometric model with reservation rates to control for endogenous matching in interbank money markets. We apply our method to a unique data set and study the interbank market during the European sovereign debt crisis. The estimates uncover the existence of reservation rates, their omission can bias important quantities like the discount enjoyed by big banks, a potential
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Hello from the Other Side: Both Government Liabilities and Assets Matter for Sovereign Risk Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-10-25 JEMIMA PEPPEL-SREBRNY
We provide evidence that for advanced economies' sovereign bond markets in recent decades, both sides of the government balance sheet matter: for explaining government borrowing cost empirically, (i) government assets are significant in addition to government liabilities, and (ii) it is government net worth (total financial and non-financial assets less liabilities) rather than government liabilities
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The Effects of Fiscal Policy When Planning Horizons are Finite Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-10-24 JOEP LUSTENHOUWER, KOSTAS MAVROMATIS
We study the importance of planning horizons for fiscal multipliers in a New-Keynesian model with bounded rationality. We show that, when agents have shorter planning horizons, government spending multipliers are smaller, whereas labor tax cut multipliers are larger. Furthermore, Ricardian equivalence breaks down, and transfer shocks feature a negative multiplier. Results are driven by the cognitive
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The Impact of Credit Risk Mispricing on Mortgage Lending during the Subprime Boom Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-10-22 JAMES A. KAHN, BENJAMIN S. KAY
We provide new evidence that mispriced mortgage insurance shifted credit supply and contributed to the mortgage boom and bust of the early 2000s. Original data on private mortgage insurance premiums from 1999 to 2016 reveal that before 2008, premiums did not vary across loans with widely different indicators of default risk. We quantify the mispricing of premiums before 2008 and show that even allowing
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Spatial Dependence via the Internal Capital Markets of U.S. Global Banks Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-10-18 CARMELA D'AVINO, MIMOZA SHABANI
In this paper, we estimate the cross-border liquidity network created by U.S. global banks via their internal capital markets to capture the spatial dependence or bilateral proximity between branches located in different countries. Results from dynamic spatial panel regressions indicate that the foreign branches in nearby countries show common lending patterns. A 1% increase in lending in branches
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Nonlinear Transmission of Financial Shocks: Some New Evidence Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-10-17 MARIO FORNI, LUCA GAMBETTI, NICOLÒ MAFFEI-FACCIOLI, LUCA SALA
Financial shocks generate a protracted and quantitatively important effect on real economic activity and financial markets only if the shocks are both negative and large. Otherwise, their role is quite modest. Financial shocks have become more important for economic fluctuations after 2000 and have contributed substantially to deepening the recessions of 2001 and 2008. The evidence is obtained using
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Monetary Policy and Mispricing in Stock Markets Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-09-25 BENJAMIN BECKERS, KERSTIN BERNOTH
We investigate the role of monetary policy in stock price misalignments and explore whether central banks can attenuate excessive mispricing as suggested by the proponents of a “leaning against the wind” monetary policy. Decomposing stock prices into expected excess dividends, an equity risk premium, and a mispricing component, we find that prices fall more strongly in response to an increase in the
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Real Interest Rates and Population Growth across Generations* Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-09-19 LUCAS FUHRER, NILS HERGER
This paper empirically examines the correlation between population growth and real interest rates. Although this correlation is well founded in macroeconomic theory, the corresponding empirical results have been rather tenuous. Demographic interest rate theories are typically based on long-term relationships across generations. Accordingly, key population trends appear often only across decades, if
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Media Treatment of Monetary Policy Surprises and Their Impact on Firms' and Consumers' Expectations Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-09-19 JULIEN PINTER, EVŽEN KOČENDA
We investigate whether monetary policy announcements affect firms' and consumers' expectations by considering their media treatment. We initially use standard monetary policy surprise measures and analyze how the main general newspapers in France report on the announcements. Eighty-five percent of the monetary policy surprises are either not associated with the newspapers reporting a change in the
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Oil Shocks, External Adjustment, and Country Portfolio Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-22 LIUGANG SHENG, HONGYAN ZHAO
This study examines the intertemporal nature of countries’ external adjustment by using two oil income shocks with different timings: giant oil discovery news shocks and contemporaneous oil revenue shocks from international oil price changes. Empirical estimates using a large panel of countries support the intertemporal theory. Net foreign assets hike immediately upon oil revenue shocks, but decline
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Can Internet Banking Affect Households' Participation in Financial Markets and Financial Awareness? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-22 VALENTINA MICHELANGELI, ELIANA VIVIANO
We are in a digital era and more and more banks have begun to offer Internet banking. The availability of this new channel can reduce households' cost of acquiring information and the time spent on financial transactions; therefore, it could also impact on households' decisions to start investing in financial markets. Using an instrumental variable approach, we find that the adoption of Internet banking
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Monetary and Macroprudential Policy and Welfare in an Estimated Four-Agent New Keynesian Model Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-21 GEORGE J. BRATSIOTIS, KASUN D. PATHIRAGE
We examine the social and agent-specific welfare effects of monetary and macroprudential policy in a four-agent estimated macro-economic model comprising “banked simple households,” “underbanked simple households,” “firm owners,” and “bank owners.” Optimal capital requirement and loan loss provisions ratios improve all agent-specific and social welfare, but imply smaller gains for simple households
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Housing Boom-Bust Cycles and Asymmetric Macroprudential Policy Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-21 William Gatt
In this paper, I argue that occasionally binding borrowing constraints are a source of nonlinearity that warrant an appropriate nonlinear macroprudential policy response. Nonlinear policy responses likely better capture the spirit of macroprudential policy. I show that an asymmetric macroprudential policy rule, which lowers the borrowing limit more aggressively during credit booms, obtains better economic
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The Asymmetric Effect of Credit Supply on Firm-Level Productivity Growth Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-21 FRANCESCO MANARESI, NICOLA PIERRI
We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database, covering all the credit relationships of Italian corporations, to measure idiosyncratic supply-side shocks to credit availability and estimate a production model augmented with financial frictions. We find the effect of credit supply to be asymmetric: contractions harm TFP growth, halting productivity-enhancing
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R&D, Market Power, and the Cyclicality of Employment Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-21 ULUC AYSUN, MELANIE GULDI, ADAM HONIG, ZEYNEP YOM
This paper provides a first look into the joint effects of research and development (R&D) and market power on the cyclicality of employment. It presents a theoretical model with R&D and monopolistically competitive firms which shows that firms smooth their R&D activities when they face large R&D adjustment costs. This smoothing behavior comes at the expense of higher labor volatility, and it is stronger
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Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-08-03 KATHARINA BERGANT, FRANCESCO GRIGOLI, NIELS-JAKOB HANSEN, DAMIANO SANDRI
We show that macroprudential regulation significantly dampens the impact of global financial shocks on emerging markets. Specifically, a tighter level of regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the Chicago Board Options Exchange's VIX. A broad set of macroprudential tools contributes to this result, including measures targeting bank capital and liquidity
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Does the Government Spending Multiplier Depend on the Business Cycle? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-07-31 SEBASTIAN LAUMER, COLLIN PHILIPPS
We investigate the state dependency of the government spending multiplier across the business cycle using a nonlinear two-regime VAR model. We find little evidence that multipliers vary between expansionary and recessionary periods. This is because the state of the business cycle itself changes after government spending shocks and converges toward a similar state. This result holds true regardless
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The Credit-Card-Services Augmented Divisia Monetary Aggregates* Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-07-28 WILLIAM A. BARNETT, MARCELLE CHAUVET, DANILO LEIVA-LEON, LITING SU
While credit cards provide transaction services, they have never been included in measures of money supply. We derive the theory to measure the joint services of credit cards and money and propose two measures of their joint services: one based on microeconomic structural aggregation theory, providing an aggregated variable within the macroeconomy; the other a credit-card-extended aggregate, optimized
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Expectations Formation, Sticky Prices, and the ZLB Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-07-20 ELIZABETH BERSSON, PATRICK HÜRTGEN, MATTHIAS PAUSTIAN
At the zero lower bound (ZLB), expectations about the future path of monetary or fiscal policy are crucial. We model expectations formation under level-k thinking, a form of bounded rationality formalized by García-Schmidt and Woodford (2019) and Farhi and Werning (2019), consistent with experimental evidence. This process does not lead to a number of puzzling features from rational expectations models
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Countercyclical Capital Buffers: A Cautionary Tale Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-06-25 CHRISTOFFER KOCH, GARY RICHARDSON, PATRICK VAN HORN
Countercyclical capital buffers (CCyBs) are an old idea recently resurrected. They compel systemically important banks to accumulate capital during expansions to sustain operations during downturns. We compare banks before the Great Depression, when CCyBs existed, and Great Recession, when they did not. Pre-Depression systemically important banks built capital buffers between 3% and 5% of total assets
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The Size Distribution of the Banking Sector and Financial Fragility Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-15 JIAHONG GAO, ROBERT R. REED
We study the role of the size distribution of the banking sector for bailout policy and financial fragility in a model of financial intermediation with limited commitment and noisy sunspots. In particular, due to the different costs of mitigating depositors' losses, differences in financial fragility arise endogenously in the sense that the large banking market admits a higher degree of instability
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The Quality-Weighted Matching Function: Did the German Labor Market Reforms Trade-Off Efficiency against Job Quality? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-14 HERMANN GARTNER, THOMAS ROTHE, ENZO WEBER
We evaluate the quantity–quality trade-off on the labor market by estimating an augmented matching function weighting the matches by quality measures. We use the approach to evaluate the German labor market reforms conducted between 2003 and 2005. Indeed, we find a significant quantity–quality trade-off. However, even after controlling for job quality, a good half of the positive effect of the reforms
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Owner-Occupied Housing, Inflation, and Monetary Policy Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-13 ROBERT J. HILL, MIRIAM STEURER, SOFIE R. WALTL
Owner-occupied housing (OOH) is currently excluded from the harmonized index of consumer prices (HICP) in Europe. Using microlevel data for Sydney and aggregated data for the United States, France, and Germany, we compare the impact of alternative treatments of OOH on measured inflation. We recommend including OOH in the HICP using a simplified version of the user-cost method. This would improve the
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Collateral Framework: Liquidity Premia and Multiple Equilibria Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-12 YVAN LENGWILER, ATHANASIOS ORPHANIDES
Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external assessments of the creditworthiness of its member states, such as credit ratings, to determine eligibility and the
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Financial Expectations and Household Consumption: Does Middle-Inflation Matter? Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-12 SARAH BROWN, MARK N. HARRIS, CHRISTOPHER SPENCER, KARL TAYLOR
We explore the finding that households often expect their financial position to remain unchanged compared to other alternatives. A generalized middle inflated ordered probit (GMIOP) model is used to account for the tendency of individuals to choose “neutral” responses when faced with opinion-based questions. Our analysis supports the use of a GMIOP model to account for this response pattern. Expectation
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A Theory of Intrinsic Inflation Persistence Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-12 TAKUSHI KUROZUMI, WILLEM VAN ZANDWEGHE
We propose a novel theory of intrinsic inflation persistence by introducing trend inflation and Kimball (1995)-type aggregators of individual differentiated goods and labor in a model with staggered price- and wage-setting. Under nonzero trend inflation, the non-CES (constant elasticity of substitution) aggregator of goods and staggered price-setting give rise to a variable real marginal cost of goods
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Government Spending, Debt Management, and Wealth and Income Inequality in a Growing Monetary Economy* Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-03 YOICHI GOKAN, STEPHEN J. TURNOVSKY
This paper compares the impact of government investment and government consumption on macroeconomic aggregates and inequality when the government deficit is money-financed while maintaining a fixed debt-money ratio. Real aggregate quantities are independent of the debt-money ratio, as is wealth inequality, but income inequality is impacted. We also investigate the impact of these two forms of government
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The (Ir)Relevance of Rule-of-Thumb Consumers for U.S. Business Cycle Fluctuations Journal of Money, Credit and Banking (IF 1.963) Pub Date : 2023-05-03 ALICE ALBONICO, GUIDO ASCARI, QAZI HAQUE
We estimate a medium-scale model with and without rule-of-thumb consumers over the pre-Volcker and the Great Moderation periods, allowing for indeterminacy. Passive monetary policy and sunspot fluctuations characterize the pre-Volcker period for both models. In both subsamples, the estimated fraction of rule-of-thumb consumers is low, such that the two models are empirically almost equivalent; they