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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 53 items for :

  • Type: Journal Issue x
  • Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy x
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Cover IMF Working Papers
A New Dataset of High-Frequency Monetary Policy Shocks
Marijn A. Bolhuis
,
Sonali Das
, and
Bella Yao
This paper presents a new dataset of monetary policy shocks for 21 advanced economies and 8 emerging markets from 2000-2022. We use daily changes in interest rate swap rates around central bank announcements to identify unexpected shocks to the path of monetary policy. The resulting series can be used to examine cross-country heterogeneity in the impact of monetary policy shocks. We establish a new empirical fact on monetary policy spillovers across countries: the monetary policy decisions of small open economy central banks, and not just major central banks, have substantial spillover effects on swap rates and bond yields in other countries.
Keywords:
monetary policy surprises; monetary policy shocks; central banks; central bank information effect; emerging markets; high-frequency method; spillovers; monetary policy spillovers; monetary policy spillover; monetary policy shock; information effect; monetary policy decision; monetary policy surprise; Yield curve; Sovereign bonds; Central bank policy rate; Emerging and frontier financial markets; Nominal effective exchange rate; Global
Cover IMF Working Papers
Policy Multipliers in Japan Under QQE
Sam Ouliaris
and
Celine Rochon
This paper tests whether Japan's key macro policy multipliers have declined since 2013, the year that Japan introduced Qualitative and Quantitative Easing. We use the augmented Blanchard-Perotti structural VAR model introduced in Ouliaris and Rochon (2021) to study the dynamic effects of shocks in the central bank’s asset holdings, interest rates, and debt levels relative to GDP on economic activity in Japan. We find that both the expenditure and tax multipliers of Japan have fallen, implying that the effectiveness of fiscal policy in Japan declined following the change in monetary policy. Moreover, we find that the efficacy of quantitative easing is small, implying the need for huge interventions to have a significant effect on real GDP, and that the effectiveness of quantitative easing has declined since 2013. We argue that the reduction in policy multipliers can be attributed to the upward trend in the government debt level relative to GDP which, despite historically low interest rates, has increased Japan’s structural deficit, and the likelihood of reduced expenditures and higher taxes going forward.
Keywords:
fiscal multipliers; structural VAR; policy multiplier; debt multiplier; tax multiplier; effectiveness of quantitative easing; QQE multiplier; Tax expenditures; Real interest rates; Central bank balance sheet
Cover IMF Working Papers
Quasi-Fiscal Implications of Central Bank Crisis Interventions
John Hooley
,
Mr. Ashraf Khan
,
Claney Lattie
,
Istvan Mak
,
Ms. Natalia Salazar
,
Amanda Sayegh
, and
Mr. Peter Stella
We develop a stylized balance sheet framework to help identify ‘quasi-fiscal’ components of central bank crisis interventions and show how sources of fiscal risk are created from both the new claims and how they are funded. Combining central bank balance sheet data with survey evidence from intervention announcements, we document the risks to the public sector balance sheet from central banks’ interventions in response to the Covid-19 crisis, including non-conventional lending to the financial and non-financial sectors and large-scale purchases of government securities. Case study analysis indicates that management of fiscal risks from central bank crisis interventions varies greatly across countries, although several good practices can be identified.
Keywords:
Central bank; quasi-fiscal; fiscal risks; monetary policy; fiscal policy; sovereign debt management; policy coordination; support facilities; intervention announcement; asset purchase facility; liquidity-providing repo; variable interest entity; Central bank balance sheet; Central bank operations; Financial statements; Global
Cover IMF Working Papers
Measuring the Stances of Monetary and Fiscal Policy
Mr. Francis Vitek
We derive measures of the stances of monetary and fiscal policy within the framework of an empirically plausible extension of the basic New Keynesian model, and jointly estimate them for the United States using a closed form multivariate linear filter. Our theoretical analysis reveals that the neutral stance of monetary policy — as measured by the real natural rate of interest — depends on the stance of fiscal policy, which in turn depends on the composition and expected timing of structural changes in the fiscal instruments. Our empirical application finds that accounting for fiscal policy significantly alters the estimated stance of monetary policy, and that the so-called fiscal impulse is a poor proxy for the stance of fiscal policy.
Keywords:
stance of monetary policy; stance of fiscal policy; new keynesian model; multivariate linear filter; fiscal policy stance; stances of monetary and fiscal policy; monetary policy stance; filter estimation result; Fiscal stance; Monetary stance; Real interest rates; Output gap; Global
Cover IMF Working Papers
Macroeconomic Effects of Climate Change in an Aging World
Mr. Vimal V Thakoor
and
Engin Kara
Climate and demographic changes are two major long-term trends that are evolving simultaneously. The global population is aging, while climate change is increasing the frequency and severity of weather-related disasters and lowering productivity. This paper examines the macroeconomic effects of these three changes in a common framework. Simulation results suggest that while aging drags down the real interest rate, climate change puts upward pressure on the real interest rate and inflation. As climate change intensifies, it will be the dominant factor shaping the macroeconomic variables. This results in higher inflation and a higher debt-to-GDP ratio, requiring tighter fiscal and monetary policies. The results further suggest that economic uncertainty induced by climate change amplifies these effects of climate change.
Keywords:
Demographic change; climate change; natural disasters; simulation result; results summary; disaster shock; effects of climate change; consumption share; Consumption; Aging; Real interest rates; Global
Cover IMF Working Papers
Advancing the Monetary Policy Toolkit through Outright Transfers
Sascha Buetzer
This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank's loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a debt or money financed fiscal stimulus, which are particularly pronounced in a currency union without a central fiscal capacity. The paper concludes by discussing broader institutional, political, and legal considerations.
Keywords:
Monetary Policy; Outright Transfers; Central Bank Balance Sheet; Central Bank Solvency; Central Bank Equity; Helicopter Money; Inequality; policy solvency; equity position; revaluation account; Unconventional monetary policies; Financial statements; Global
Cover IMF Working Papers
Government Spending Effects in a Policy Constrained Environment
Ruoyun Mao
and
Susan Yang Shu-Chun
The theoretical literature generally finds that government spending multipliers are bigger than unity in a low interest rate environment. Using a fully nonlinear New Keynesian model, we show that such big multipliers can decrease when 1) an initial debt-to-GDP ratio is higher, 2) tax burden is higher, 3) debt maturity is longer, and 4) monetary policy is more responsive to inflation. When monetary and fiscal policy regimes can switch, policy uncertainty also reduces spending multipliers. In particular, when higher inflation induces a rising probability to switch to a regime in which monetary policy actively controls inflation and fiscal policy raises future taxes to stabilize government debt, the multipliers can fall much below unity, especially with an initial high debt ratio. Our findings help reconcile the mixed empirical evidence on government spending effects with low interest rates.
Keywords:
WP; nominal interest rate; regime F; government spending effects; fiscal multiplier; regime-switching policy; monetary; fiscal policy interaction; nonlinear New Keynesian models; government spending effect; output multiplier; government spending multiplier; government spending increase; fiscal policy; policy uncertainty; Inflation; Real interest rates; Consumption; Global; Zero lower bound
Cover IMF Working Papers
Inflation and Public Debt Reversals in Advanced Economies
Ichiro Fukunaga
,
Mr. Takuji Komatsuzaki
, and
Hideaki Matsuoka
This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.
Keywords:
WP; inflation shock; Inflation; public debt; financial repression; advanced economies; deflation shock; rollover ratio; inflation expectation; debt maturity; Debt reduction; Long term interest rates; Deflation; Global
Cover IMF Working Papers
Fiscal Implications of Interest Rate Normalization in the United States
Huixin Bi
,
Ms. Wenyi Shen
, and
Susan Yang Shu-Chun
This paper studies the main channels through which interest rate normalization has fiscal implications in the United States. While unexpected inflation reduces the real value of government liabilities, a rising policy rate increases government financing needs because of higher interest payments and lower real bond prices. After an initial decline, the real government debt burden rises even with higher tax revenues in an expansion. Given the current net debt-to-GDP ratio at around 80 percent, interest rate normalization leads to a negligible increase in the sovereign default risk of the U.S. federal government, despite a much higher federal debt-to-GDP ratio than the post-war historical average.
Keywords:
WP; interest rate; income tax; monetary policy; interest rate normalization; monetary and fiscal policy interaction; fiscal sustainability; non linear DSGE models; New Keynesian model; devaluation effect; income tax tax rate; debt level; equilibrium debt valuation equation; liabilities decline; Central bank policy rate; Inflation; Capital income tax; Interest payments
Cover IMF Working Papers
Managing Reductions in Aid Inflows: Assessing Policy Choices in Haiti
Ioana Moldovan
,
Mrs. Marina V Rousset
, and
Chris Walker
A low-income country such as Haiti that confronts an environment of diminishing aid inflows must assess tradeoffs among the available policy options: spending cuts, monetization, sales of debt, or use of foreign reserves. To provide the analytical tools for this task, the paper draws from a set of DSGE models recently developed to evaluate policy choices in low-income countries for which external aid flows represent an important revenue source. Two simplified stylized variations of the main model are used to gain intuition and initially assess the trdeaoffs. Subsequenctly a full-scale small open economy DSGE model, calibrated to match conditions in Haiti and in similar low-income countries, is employed. Several key results are common to all model versions. While sales of foreign exchange reserves can compensate for the loss of aid inflows, this strategy is not sustainable. The remaining policy choices entail larger welfare costs, involving lower consumption levels and real depreciation. The results suggest that a mixture of spending cuts and depreciation is the best strategy, when use of foreign reserves is constrained.
Keywords:
WP; real interest rate; Dynamic Stochastic General Equilibrium Model (DSGE); Aid; Fiscal Policy; Monetary Policy; Public Investment; Foreign Reserves; Haiti; depreciation rate; open economy; labor disutility parameter; nominal exchange rate; exchange rate depreciation; government spending cut; aggregate consumption; labor income; monopolistic competition; exchange rate fluctuation; steady-state labor; labor supply decision; Consumption; Real exchange rates; Real interest rates; Western Hemisphere; Caribbean; Global