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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 11 items for :

  • Type: Journal Issue x
  • Forecasting and Simulation: Models and Applications x
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Cover Staff Discussion Notes
A Capital Market Union for Europe
Mr. Ashok Vir Bhatia
,
Ms. Srobona Mitra
,
Mr. Shekhar Aiyar
,
Luiza Antoun de Almeida
,
Cristina Cuervo
,
Mr. Andre O Santos
, and
Tryggvi Gudmundsson
This note weighs the merits of a capital market union (CMU) for Europe, identifies major obstacles in its path, and recommends a set of carefully targeted policy actions. European capital markets are relatively small, resulting in strong bank-dependence, and are split sharply along national lines. Results include an uneven playing field in terms of corporate funding costs, the rationing out of collateral-constrained firms, and limited shock absorption. The benefits of integration center on expanding financial choice, ultimately to support capital formation and resilience. Capital market development and integration would support a healthy diversity in European finance. Proceeding methodically, the note identifies three key barriers to greater capital market integration in Europe: transparency, regulatory quality, and insolvency practices. Based on these findings, the note urges three policy priorities, focused on the three barriers. There is no roadblock—such steps should prove feasible without a new grand bargain.
Keywords:
SDN; EU counterparty; EU capital market practitioner; euro area; EU capital market rule; EU treaty; EU venture capital funds; Capital market union; financial integration; bilateral portfolio flows; monetary union; investment firm; funding cost; growth performance; private equity; equity valuation; capital market market fragmentation; nonfinancial firm; company information; Capital markets; Securities; Stocks; Mutual funds; Solvency; Europe; Global
Cover IMF Working Papers
The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide
Mr. Evan C Tanner
Simple macroeconomic frameworks like the IS/LM have survived because they help us conceptualize complex problems while also providing ‘back of the envelope’ estimates of macroeconomic outcomes. Herein, a bare-bones New Keynesian extension of the IS/LM model yields solutions for core macro variables (output gap, inflation, interest rate, real exchange rate misvaluation)—expressed in percent. We then extend that standard model to also generate a corresponding set of demand-side elements—expressed in currency units. A key aim of the paper is to reconcile these two metrics in ways that also aid communication and intuition—including through IS/LM-style graphs.
Keywords:
WP; exchange rate
Cover IMF Working Papers
Is Japan’s Population Aging Deflationary?
Mr. Derek Anderson
,
Mr. Dennis P Botman
, and
Mr. Benjamin L Hunt
Japan has the most rapidly aging population in the world. This affects growth and fiscal sustainability, but the potential impact on inflation has been studied less. We use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Many of these factors will beset other advanced countries as well, but we find that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset.
Keywords:
WP; real interest rate; price; aggregate demand; monetary policy; Population aging; deflation; Abenomics; inflation expectation; inflation dynamics; factor of production; affects inflation; savings rate; rate of return; retirees fan inflation; Aging; Real interest rates; Inflation; Fiscal consolidation; Global
Cover IMF Working Papers
Aggregate Uncertainty and the Supply of Credit
Mr. Fabian Valencia
Recent studies show that uncertainty shocks have quantitatively important effects on the real economy. This paper examines one particular channel at work: the supply of credit. It presents a model in which a bank, even if managed by risk-neutral shareholders and subject to limited liability, can exhibit self-insurance, and thus loan supply contracts when uncertainty increases. This prediction is tested with the universe of U.S. commercial banks over the period 1984-2010. Identification of credit supply is achieved by looking at the differential response of banks according to their level of capitalization. Consistent with the theoretical predictions, increases in uncertainty reduce the supply of credit, more so for banks with lower levels of capitalization. These results are weaker for large banks, and are robust to controlling for the lending and capital channels of monetary policy, to different measures of uncertainty, and to breaking the dataset in subsamples. Quantitatively, uncertainty shocks are almost as important as monetary policy ones with regards to the effects on the supply of credit.
Keywords:
WP; monetary policy; interest rate; natural logarithm; Credit Cycles; Credit Crunch; Uncertainty; Self-insurance; A. bank-borrower loan contract; bank capital; capitalized bank; capital-to-asset ratio; bank level; bank default; Loans; Bank credit; GDP forecasting; Credit; Financial frictions
Cover IMF Working Papers
The Impact of Uncertainty Shocks on the UK Economy
Miss Stephanie Denis
and
Mr. Prakash Kannan
This paper quantifies the economic impact of uncertainty shocks in the UK using data that span the recent Great Recession. We find that uncertainty shocks have a significant impact on economic activity in the UK, depressing industrial production and GDP. The peak impact is felt fairly quickly at around 6-12 months after the shock, and becomes statistically negligible after 18 months. Interestingly, the impact of uncertainty shocks on industrial production in the UK is strikingly similar to that of the US both in terms of the shape and magnitude of the response. However, unemployment in the UK is less affected by uncertainty shocks. Finally, we find that uncertainty shocks can account for about a quarter of the decline in industrial production during the Great Recession.
Keywords:
WP; uncertainty shock; economic activity; United Kingdom; Uncertainty; UK GDP; consumer confidence; policy rate shock; VAR framework; baseline Var model; unemployment in the UK; VAR model; Industrial production; Central bank policy rate; GDP forecasting; Global financial crisis of 2008-2009; Vector autoregression; Global
Cover IMF Working Papers
Getting to Know GIMF: The Simulation Properties of the Global Integrated Monetary and Fiscal Model
Mr. Derek Anderson
,
Mr. Benjamin L Hunt
,
Mika Kortelainen
,
Mr. Michael Kumhof
,
Mr. Douglas Laxton
,
Mr. Dirk V Muir
,
Susanna Mursula
, and
Stephen Snudden
The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed by the Economic Modeling Division of the IMF for policy analysis and international economic research. Using a 5-region version of the GIMF, this paper illustrates the model’s macroeconomic properties by presenting its responses under a wide range of experiments, including fiscal, monetary, financial, demand, supply, and international shocks.
Keywords:
WP; real interest rate; cost of capital; demand; interest rate; business cycle; fiscal multipliers; fiscal consolidation; fiscal policy; general equilibrium models; interest rates; macroeconomic interdependence; monetary policy; policy effects; simulation; goods sector; consumption goods; price inflation; investment goods; interest rate rule; CPI inflation rise; world real interest rate; output price; price effect; inflation rise; goods price; Real interest rates; Inflation; Consumption; Real effective exchange rates; Central bank policy rate; Global
Cover IMF Working Papers
Macrofinancial Modeling At Central Banks: Recent Developments and Future Directions
Mr. Jan Vlcek
and
Mr. Scott Roger
This paper surveys dynamic stochastic general equilibrium models with financial frictions in use by central banks and discusses priorities for future development of such models for the purpose of monetary and financial stability analysis. It highlights the need to develop macrofinancial models which allow analysis of the macroeconomic effects of macroprudential policy tools and to evaluate elements of the Basel III reforms as a priority. The paper also reviews the main approaches to introducing financial frictions into general equilibrium models.
Keywords:
WP; bank; central bank; capital; interbank market; transmission mechanism; Monetary policy analysis; financial frictions; macroeconomic modeling; lending bank; bank capital channel; banking sector; representative bank; DSGE forecasting; Financial stability assessment; Dynamic stochastic general equilibrium models; Interbank markets
Cover IMF Working Papers
A Macro Model of the Credit Channel in a Currency Union Member: The Case of Benin
Issouf Samaké
This paper applies and extends a theoretical model built by Agénor and Montiel (2007) by exploring the effectiveness of government bonds and monetary policy in a small, open, credit-based economy with a fixed exchange rate. The model is applied to Benin, a member of a currency union, using a general equilibrium model with stochastic simulation. Model calibration replicates the historical pattern for 1996–2009. Policy experiments simulated an increase in government securities in Benin’s regional market and a cut in the reserve requirement. Simulations produced mixed results. It appears that, among other factors, excess bank liquidity lowers the effectiveness of monetary policy instruments through the credit channel and that government bonds can help mop up excess bank liquidity.
Keywords:
WP; bank liquidity; open economy; Benin; Credit channel; excess liquidity; government bonds; general equilibrium; stochastic simulation; Benin economy; reserve ratio; bank balance; interest rate differential; loan payment; baseline bond; Goverenment bonds shock; government bond holding; bank loan rate; bank product; Sovereign bonds; Bank credit; Reserve requirements; Bonds; Credit; Sub-Saharan Africa
Cover IMF Working Papers
Debt, Deficits, and Age-Specific Mortality
Mr. Hamid Faruqee
This paper develops an overlapping agents model with age-specific mortality rates. The analytical framework also nests Blanchard's (1985) "perpetual youth" model as a special, though perhaps not realistic, case. With age specific mortality rates, youth is "fleeting." Using standard hyperbolic functions, the model with fleeting youth is able to closely replicate the empirical relation between age and mortality. The comparative implications for deficit finance are also examined and age-specific mortality is shown to alter the non-Ricardian properties of the model.
Keywords:
WP; death rate
Cover IMF Working Papers
Life-Cycles, Dynasties, Savings: Implications for Closed and Small, Open Economies
Mr. Hamid Faruqee
and
Mr. Douglas Laxton
This paper examines the macroeconomic implications of life-cycle and dynastic saving behavior for closed and small, open economies. Using an extended version of Blanchard’s overlapping agents model, the analytical framework nests these two competing views, treating agents as either dynastic households or disconnected generations. Calibrating the life-cycle variant using empirical age-earnings profiles, the analysis compares the long-run effects of fiscal policy shocks under both perspectives. The results quantify the implications of life-cycle considerations for the effects of deficit finance on real interest rates and the capital stock or net foreign assets.
Keywords:
WP; open economy; real interest rate; Ricardian Equivalence; Government Debt; Saving; life-cycle income; income profile; labor income; gross investment; interest income; age-earnings profile; asset income; profile choose; earnings profile; closed economy variant; asset income of the household; debt build-up; Income; Consumption; Real interest rates; Global