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Business and Economics > Finance: General

You are looking at 1 - 10 of 36 items for :

  • Type: Journal Issue x
  • Money Supply; Credit; Money Multipliers 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
Bank Profitability in Europe: Not Here to Stay
Ruo Chen
,
Vincenzo Guzzo
,
Fazurin Jamaludin
,
Adil Mohommad
,
Ritong Qu
, and
Yueshu Zhao
Slower passthrough of policy interest rate hikes to deposit rates relative to their loan rates has led to sharply wider bank net interest margins. Combined with resilient asset quality, wider net interest margins supported record profits for European banks in 2023. Drawing on historical data from the balance sheets and income statements of over 2,500 European banks, this paper shows that abnormally high profits are expected to fade soon as interest income will decline, once policy rates start being lowered, while higher impairment costs historically have weighed on profits with a lag. Moreover, a number of structural factors that have eroded the performance of European banks in the past two decades have largely remained unaddressed and will continue being a drag on profits and capital. Therefore, policymakers should encourage banks to preserve capital buffers and build resilience to future shocks, while exercising caution when considering taxes on profits or other measures that could divert potential sources of capital from banks.
Keywords:
European banks; bank profits; interest rate margins; asset quality; bank capital; bank taxation.; bank profit; interest rate margin; bank taxation; impairment cost; Bank soundness; Financial statements; Income; Yield curve; Central bank policy rate; Europe; Global
Cover IMF Working Papers
The ECB’s Future Monetary Policy Operational Framework: Corridor or Floor?
Luis Brandão-Marques
and
Lev Ratnovski
This paper reviews the trade-offs involved in the choice of the ECB’s monetary policy operational framework. As long as the ECB’s supply of reserves remains well in excess of the banks’ demand, the ECB will likely continue to employ a floor system for implementing the target interest rate in money markets. Once the supply of reserves declines and approaches the steep part of the reserves demand function, the ECB will face a choice between a corridor system and some variant of a floor system. There are distinct pros and cons associated with each option. A corridor would be consistent with a smaller ECB balance sheet size, encourage banks to manage their liquidity buffers more tightly, and facilitate greater activity in the interbank market. But it would require relatively more frequent market operations to ensure the money markets rate stays close to the policy rate and could leave the banking system vulnerable to intermittent liquidity shortages that may have financial stability implications and impair monetary transmission. The floor, on the other hand, would allow for more precise control of the overnight rate and a lower risk of liquidity shortages, but it would entail a somewhat larger ECB balance sheet, weaken the incentives for banks to manage their liquidity buffers, and discourage interbank market activity. The analysis of tradeoffs suggests that, on balance, in steady state, a hybrid system that combines the features of the “parsimonious floor” (with a minimal volume of reserves) with a lending facility or frequent short-term full-allotment lending operations priced at or very close to the deposit rate, making it a “zero (or near-zero) corridor”, would be most conducive for achieving the ECB’s monetary policy objective.
Keywords:
Central bank operations; Monetary policy; The ECB; ECB balance sheet; ECB's monetary policy objective; supply of reserve; liquidity shortage; ECB's supply; Money markets; Liquidity; Interbank markets; Central bank policy rate; Standing facilities; Global
Cover IMF Working Papers
Commercial Real Estate and Macrofinancial Stability During COVID-19
Andrea Deghi
,
Mr. Junghwan Mok
, and
Tomohiro Tsuruga
The COVID-19 pandemic crisis has severely shocked the commercial real estate (CRE) sector, which could have important implications for macro-financial stability going forward because of the large size of the sector and its strong interconnectedness with the real economy. Using a novel methodology, this paper quantifies vulnerabilities in the CRE sector and analyzes policy tools available to mitigate related risks. The analysis shows that CRE prices were overvalued in several major advanced economies in 2020:Q1. It also shows that such price misalignments increase the likelihood of future price corrections and exacerbate downside risks to future GDP growth. While the path of recovery in the sector will depend inherently on the pace of overall economic recovery and the structural shifts induced by the pandemic, easy financial conditions may contribute to an increase in financial vulnerabilities and persistent price misalignment. Macroprudential policy can, however, be effective in curbing the financial stability risks posed by the CRE sector.
Keywords:
Commercial Real Estate; Asset Prices; Growth-at-Risk; Panel Quantile Regression; Macroprudential Policy; price misalignment; CRE sector; data description; CRE valuation; price correction; COVID-19; Real estate prices; Global financial crisis of 2008-2009; Financial sector risk; Global
Cover Departmental Papers
Resolving Nonperforming Loans in Sub-Saharan Africa in the Aftermath of the COVID-19 Crisis
Luc Eyraud
,
Irina Bunda
,
Jehann Jack
,
Mr. Tarak Jardak
,
Rasmané Ouedraogo
,
Zhangrui Wang
, and
Torsten Wezel
Sub-Saharan African countries are facing an unprecedented health and economic crisis that is likely to severely hurt credit quality and raise non-performing loans from already high levels. Banks have a critical role to play not only during the crisis by providing temporarily relief to businesses and households, but also during the recovery by supporting economic activity and facilitating the structural transformations engaged by the pandemic.
Keywords:
Nonperforming loans; credit risk; banking sector; Africa; Covid-19; default (finance); NPL ratio; resolution strategy; reduction target; NPL portfolio; ratios in SSA country; NPL write-off; removing legacy NPL; management strategy; Loans; Credit; Distressed assets; Financial soundness indicators; Sub-Saharan Africa; South Asia; West Africa
Cover Departmental Papers
Resolving Nonperforming Loans in Sub-Saharan Africa in the Aftermath of the COVID-19 Crisis
Luc Eyraud
,
Irina Bunda
,
Jehann Jack
,
Mr. Tarak Jardak
,
Rasmané Ouedraogo
,
Zhangrui Wang
, and
Torsten Wezel
Sub-Saharan African countries are facing an unprecedented health and economic crisis that is likely to severely hurt credit quality and raise non-performing loans from already high levels. Banks have a critical role to play not only during the crisis by providing temporarily relief to businesses and households, but also during the recovery by supporting economic activity and facilitating the structural transformations engaged by the pandemic.
Keywords:
Nonperforming loans; credit risk; banking sector; Africa; Covid-19; default (finance); NPL ratio; resolution strategy; reduction target; NPL portfolio; ratios in SSA country; NPL write-off; removing legacy NPL; management strategy; Loans; Credit; Distressed assets; Financial soundness indicators; Sub-Saharan Africa; South Asia; West Africa
Cover IMF Working Papers
Corporate Funding and the COVID-19 Crisis
Andrea Deghi
,
Dulani Seneviratne
, and
Tomohiro Tsuruga
This paper assesses whether corporate liquidity needs in the G7 economies were met during the containment phase of the COVID-19 pandemic (February-June 2020) using various approaches to identify credit supply shocks. The pandemic crisis adversely affected nonfinancial corporate sector cash flows, generating liquidity and solvency pressures. However, corporate borrowing surged in March and into the second quarter, thanks to credit line drawdowns and unprecedented policy support. In the United States, the bond market was buoyant from the end of March onward, but credit supply conditions for bank loans and the syndicated loan market tightened. In other G7 economies, credit supply conditions generally eased somewhat across markets during the second quarter. Among listed firms, entities with weaker liquidity or solvency positions before the onset of COVID-19, as well as smaller firms, suffered relatively more financial stress in some economies in the early stages of the crisis. Residual signs of strain remained as of the end of June. Policy interventions, especially those directly targeting the corporate sector, had a beneficial effect on credit supply overall.
Keywords:
Corporate funding; Corporate cash; Credit supply; Financial constraints; Loan guarantees; Central bank policies; Group of Seven economies; COVID-19; Economic crisis; firm liquidity vulnerability; supply condition; commercial paper Issuance; government liquidity support; credit market; Credit; Bonds; Syndicated loans; Currencies; Corporate bonds; Global; Europe; commercial paper; syndicated loan market; corporate bond bond market; high-liquidity-gap firm; credit supply condition; Group of Seven economy; pandemic crisis; solvency pressure; Securities markets
Cover IMF Working Papers
Cyclical Patterns of Systemic Risk Metrics: Cross-Country Analysis
Mr. Plamen K Iossifov
We analyze a range of macrofinancial indicators to extract signals about cyclical systemic risk across 107 economies over 1995–2020. We construct composite indices of underlying liquidity, solvency and mispricing risks and analyze their patterns over the financial cycle. We find that liquidity and solvency risk indicators tend to be counter-cyclical, whereas mispricing risk ones are procyclical, and they all lead the credit cycle. Our results lend support to high-level accounts that risks were underestimated by stress indicators in the run-up to the 2008 global financial crisis. The policy implications of conflicting risk signals would depend on the phase of the credit cycle.
Keywords:
credit cycle.; WP; risk metrics; risk index; risk indices; solvency risk; interest rate; mispricing risk
Cover IMF Working Papers
Effects of Emerging Market Asset Purchase Program Announcements on Financial Markets During the COVID-19 Pandemic
Can Sever
,
Rohit Goel
,
Dimitris Drakopoulos
, and
Mr. Evan Papageorgiou
The COVID-19 pandemic led many emerging market central banks to adopt, for the first time, unconventional policies in the form of asset purchase programs. In this study, we analyze the effects of these announcements on domestic financial markets using both event studies and local projections methodology. We find that these asset purchase announcements lowered bond yields, did not lead to a depreciation of domestic currencies, and did not have much effect on equities. While the immediate effect of asset purchases appears positive, further consideration of the risks and longer-term effects of unconventional monetary policies is needed. We highlight the trade-offs involved with the implementation of these measures, and discuss their risks. This working paper adds to the debate on how asset purchase programs should be a regular part of the emerging market policy toolkit.
Keywords:
COVID-19; pandemic; asset purchase program; quantitative easing; bonds; policy announcement; policy spillover; equities; foreign exchange; central banks; emerging markets.; WP; asset purchase; QE announcement; market dynamics; EM currency; EM equity; market volatility
Cover IMF Working Papers
Twenty Years of Unconventional Monetary Policies: Lessons and Way Forward for the Bank of Japan
Mr. Niklas J Westelius
The Bank of Japan has used unconventional monetary policies to fight deflation and stabilize the financial system since the late 1990s. While the Bank of Japan’s reflation efforts have evolved over time, inflation and inflation expectations have remained stubbornly low. This paper examines the evolution of monetary policy in Japan over the past twenty years, in order to draw relevant lessons and propose ways to strengthen the Bank of Japan’s policy framework. In doing so the analysis focuses on three aspects of monetary policy: objectives and goals; policy strategies; and the communication framework. Moreover, the paper discusses coordination between monetary, fiscal, and financial policies, and how the corresponding institutional design could be strengthened.
Keywords:
Japan; unconventional monetary policy; Bank of Japan; inflation expectations; WP; BoJ staff; inflation expectation; Policy objective; price stability target; inflation target; JGB Holdings; overshooting commitment; Policy strategy; BoJ's willingness; BoJ's policy; BoJ's overshooting commitment; BoJ's inflation; Price stabilization; Inflation; Inflation targeting; Financial sector stability; Unconventional monetary policies; Global