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Business and Economics > Investments: Stocks

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

  • Type: Journal Issue x
  • Central Banks and Their Policies x
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Cover IMF Working Papers
Banks’ Adjustment to Basel III Reform: A Bank-Level Perspective for Emerging Europe
Michal Andrle
,
Vladimír Tomšík
, and
Mr. Jan Vlcek
The paper seeks to identify strategies of commercial banks in response to higher capital requirements of Basel III reform and its phase-in. It focuses on a sample of nine EU emerging market countries and picks up 5 largest banks in each country assessing their response. The paper finds that all banking sectors raised CAR ratios mainly through retained earnings. In countries where the banking sector struggled with profitability, banks have resorted to issuance of new equity or shrunk the size of their balance sheets to meet the higher capital-adequacy requirements. Worries echoed at the early stage of Basel III compilation, namely that commercial banks would shrink their balance sheet by reducing their lending to meet stricter capital requirements, did materialize only in banks struggling with profitability.
Keywords:
WP; bank; net income; balance sheet; asset; capital adequacy; Basel III; banking sector assets; cost of capital; capital adequacy ratio dynamics; increase in capital capital ratio; balance sheet growth; CAR decomposition; Income; Capital adequacy requirements; Commercial banks; Financial statements; Stocks; Europe; Baltics; Global
Cover IMF Working Papers
Spillovers from Japan’s Unconventional Monetary Policy to Emerging Asia: a Global VAR approach
Mr. Giovanni Ganelli
and
Nour Tawk
We use a Global VAR model to study spillovers from the Bank of Japan’s quantitative and qualitative easing (QQE) on emerging Asia.1 Our main result is that, despite an appreciation of their currencies vis-à-vis the yen, the impact on emerging Asia’s GDP tended to be positive and significant. Our results suggest that the positive effect of QQE on expectations, by improving confidence, more than offset any negative exchange rate spillover due to expenditure switching from domestic demand to Japanese goods. They also suggest that spillovers from QQE might have worked mainly through the impact of expectations and improved confidence, captured by increases in equity prices, rather than through balance sheet adjustments which might have been captured by movements in the monetary base.
Keywords:
WP; price; Japan; interest rate; Japan's QQE; net export; QQE; Spillovers; Emerging Asia; equity price; Japan MSCI index; currency appreciation; Japan's price competitiveness; equity price shock; Japan's quantitative easing program; QQE in Japan; stock price effect; price boom; equity price increase; Inflation; Stocks; Monetary base; Unconventional monetary policies; Exchange rates; Asia and Pacific; Global; Europe
Cover IMF Working Papers
Systemic Risk: A New Trade-off for Monetary Policy?
Stefan Laseen
,
Mr. Andrea Pescatori
, and
Mr. Jarkko Turunen
We introduce time-varying systemic risk in an otherwise standard New-Keynesian model to study whether a simple leaning-against-the-wind policy can reduce systemic risk and improve welfare. We find that an unexpected increase in policy rates reduces output, inflation, and asset prices without fundamentally mitigating financial risks. We also find that while a systematic monetary policy reaction can improve welfare, it is too simplistic: (1) it is highly sensitive to parameters of the model and (2) is detrimental in the presence of falling asset prices. Macroprudential policy, similar to a countercyclical capital requirement, is more robust and leads to higher welfare gains.
Keywords:
WP; monetary policy; Endogenous Financial Risk; DSGE models; Non-Linear Dynamics; Policy Evaluation; monetary policy reaction; surprise monetary policy tightening; inflation index; prices-low return; monetary policy surprise; equity constraint; monetary policy shock; deviations from fundamentals; utility function; price inflation index; monetary policy behavior; equity constraint bind; Financial sector; Asset prices; Stocks; Nonbank financial institutions; Inflation; Global
Cover IMF Working Papers
Does the Clarity of Inflation Reports Affect Volatility in Financial Markets?
Mr. Ales Bulir
,
Mr. Martin Cihak
, and
Mr. David-Jan Jansen
We study whether clarity of central bank inflation reports affects return volatility in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level, a standard readability measure. We find some evidence, mainly for the euro area, of a negative relationship between clarity and market volatility prior to and during the early stage of the global financial crisis. As the crisis unfolded, there is no longer robust evidence of a negative connection. We conclude that reducing noise using clear reports is possible but not without challenges, especially in times of crisis.
Keywords:
WP; inflation report; estimation result; stock index; central bank communication; clarity; financial markets; inflation reports; volatility; BoE web site; market reaction; point estimate; market uncertainty; financial market volatility; volatile inflation; financial market return; FK grade level; Communications in revenue administration; Inflation; Global financial crisis of 2008-2009; Stocks; Global
Cover IMF Working Papers
Managing the Exit: Lessons from Japan's Reversal of Unconventional Monetary Policy
Mr. Murtaza H Syed
and
Hiromi Yamaoka
In responding to the global crisis, central banks in several advanced economies ventured beyond traditional monetary policy. A variety of unorthodox measures, including purchases of public and private assets, have significantly enlarged their balance sheets. As recoveries take hold, focus will increasingly shift from countering the Great Recession to orchestrating an exit and returning to a more normal monetary framework. Five years ago, as its economy recovered from a severe financial crisis, Japan attempted just such an exit. This note revisits the Bank of Japan’s experience and draws potential lessons for managing an orderly exit today, with a focus on technical aspects, practicalities, and communication strategies. While the nature of the assets acquired during the present crisis could pose additional complications, parts of Japan’s arsenal—communication, flexibility, a sufficient set of policy tools and a strategy for using them, safeguards against potential losses, the revival of risk appetite through decisive restructuring of balance sheets, and refinements to the monetary framework upon exit—also could be important this time around.
Keywords:
WP; central bank; BoJ official; balance sheet; exit announcement; policy reaction function; Monetary Policy; Quantitative Easing; Exit; JGB purchase; Financial statements; Unconventional monetary policies; Central bank policy rate; Liquidity; Stocks; Global
Cover IMF Working Papers
International Currency Portfolios
Mr. Michael Kumhof
This paper develops a theory of international currency portfolios that holds in general equilibrium, and that is therefore not subject to the criticisms directed at the portfolio balance literature of the 1980s. It shows that, under plausible assumptions about fiscal policy, the relationship between the rates of return of different currency bonds is not correctly described by an arbitrage relationship but instead also depends on outstanding bond stocks. Other findings are: (1) There is a monotonically increasing relationship between domestic interest rates and the portfolio share of domestic currency denominated assets. This relationship is steep at low levels of government debt, and almost flat at high levels of government debt. (2) Optimal private sector foreign currency positions are negative, and their size is decreasing in exchange rate volatility. Under volatile exchange rates large negative aggregate net foreign asset positions can only be rationalized by assuming large public sector borrowing from foreign governments. (3) For a baseline economy with zero net foreign assets, open market sales of domestic government debt lead to valuation gains (losses) when the country as a whole has a short (long) position in foreign currency. (4) A fiscal theory of exchange rate determination is compatible with general equilibrium in a two-country world. (5) Equilibria are determinate when both fiscal and monetary policy are passive.
Keywords:
WP; foreign currency; fiscal policy; Portfolio balance theory; imperfect asset substitutability; interest parity; open market operations; portfolio share; price level; money stock; financial asset; currency risk; foreign currency bond; currency lending; real value; exchange rate volatility; currency assets; currency asset; asset market intervention; Currencies; Exchange rates; Monetary base; Stocks; Global
Cover IMF Working Papers
Financial Globalization and Monetary Policy
Michael B. Devereux
and
Mr. Alan Sutherland
What does financial globalization imply for the design of monetary policy? Does the case for price stability change in an environment of large cross country gross asset holdings?. This paper is concerned with the effects of monetary policy under endogenous international portfolio choice and incomplete markets. With endogenous portfolios, monetary policy takes on new importance due to its impact on the distribution of returns on nominal assets. Surprisingly, we find an even stronger case for price stability in this environment. Even without nominal rigidities, price stability has a welfare benefit by enhancing the risk sharing capacity of nominal bond returns.
Keywords:
WP; mover accent; monetary policy
Cover IMF Working Papers
Capital Structures and Portfolio Composition During Banking Crisis: Lessons from Argentina 1995
Mr. Alberto M. Ramos
This paper constructs a theoretical framework that rationalizes banks’ short- and long-run adjustment dynamics—in portfolio composition and in the capital structure—following a period of financial distress. The model captures stylized facts about banks’ behavior following a shock to the capital base—namely, the rush to liquidity and credit crunch. Bank panel data show that Argentine domestic retail banks underwent a period of adjustment of six quarters following the Mexican devaluation crisis, reducing their risk-exposure since, owing to bank capital scarcity, depositors became less prone to tolerate bank default risk. Foreign-owned banks suffered a milder shock and adjusted immediately.
Keywords:
WP; central bank; optimal portfolio; capital structure; Banking Crisis; Argentina; Bank Capital; Tequila effect; Banking Distress; present discounted value; capital base; bank default risk; ÷ assets; adjustment dynamics; expected return; exposure bank; bank regulator; asset risk; vault reserve; insurance bank; Loans; Deposit insurance; Stocks; Bonds; Insurance
Cover Limiting Central Bank Credit to the Government
Limiting Central Bank Credit to the Government
Theory and Practice
Mr. Carlo Cottarelli

Abstract

This paper examines central bank independence with reference to the constraints on central bank credit to the government, focusing on how such credit should be regulated. It discusses why credit should be contsrained, and in which forms, and how to implement those constraints.

Keywords:
OP; government; independence; central bank; central bank vis-à-vis; central bank credit; inflation performance; market rate; GDP ratio; Central bank credit; Credit; Securities; Bank deposits; Current account; Caribbean; West Africa; Europe; government market interest rate; central bank grant; central bank's independence; members of the European Community; Monetary base; Central bank autonomy; Monetary expansion
Cover IMF Working Papers
The Optimal Rate of Money Creation in an Overlapping Generations Model: Numerical Simulations for the U.S. Economy
Mr. A. J Hamann
This paper develops a large scale overlapping generations model and calibrates it for the U.S. economy. Simulations with the model show that the steady state welfare maximizing inflation rate may be positive, although the numerical results are not robust. It is also shown, however, that increases in the inflation rate are never Pareto efficient because during the transition to the new steady state at least some generations are made worse-off. Using an optimality criterion that takes into account the welfare of all generations, it is found that implementing Friedman’s rule is a Pareto superior policy, and that the efficiency gains derived from implementing such rule could be substantial.
Keywords:
WP; inflation rate; capital stock; real value; substitution effect; money creation; rate of inflation; money balance; aggregate money demand; steady state; money demand function; price level; money holding; age consumption profile; Pareto efficiency; Inflation; Consumption; Currency issuance; Demand for money; Stocks; rate of money creation; numerical simulation; optimal rate of money creation