Monetary Policy Transmission in Emerging Markets and Developing Economies
Monetary Policy Transmission in Emerging Markets and Developing Economies

Author: Mr.Luis Brandao-Marques

Publisher: International Monetary Fund

Published: 2020-02-21

Total Pages: 54

ISBN-13: 1513529730

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Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

Monetary Policy Transmission in the Euro Area
Monetary Policy Transmission in the Euro Area

Author: Ignazio Angeloni

Publisher: Cambridge University Press

Published: 2003-12-04

Total Pages: 515

ISBN-13: 1139438816

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This 2003 book offers the most systematic analysis available of the impact of European Central Bank monetary policy on the national economies of the Eurozone. Analysing macro and micro-economic evidence, with chapters by central bank economists, including a discussion chapter by eminent macroeconomists, it is an essential contribution to research on the subject.

Mortgage Defaults
Mortgage Defaults

Author: Juan Carlos Hatchondo

Publisher: International Monetary Fund

Published: 2012-01-01

Total Pages: 33

ISBN-13: 1463954778

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This paper incorporates house price risk and mortgages into a standard incomplete market (SIM) model. The model is calibrated to match U.S. data and accounts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home ownership, and the mortgage default rate. The average coefficients that measure the agents' ability to self-insure against income shocks are similar to those of a SIM model without housing but housing increases the values of these coefficients for younger agents. The response of consumption to house price shocks is minimal. The introduction of minimum down payments or income garnishment benefits a majority of the population.

The Housing Supply Channel of Monetary Policy
The Housing Supply Channel of Monetary Policy

Author: Bruno Albuquerque

Publisher: International Monetary Fund

Published: 2024-02-02

Total Pages: 60

ISBN-13:

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We study the role of regional housing markets in the transmission of US monetary policy. Using a FAVAR model over 1999q1–2019q4, we find sizeable heterogeneity in the responses of US states to a contractionary monetary policy shock. Part of this regional variation is due to differences in housing supply elasticities, household debt overhang, and housing wealth (volatility). Our analysis indicates that house prices and consumption respond more in supply-inelastic states and in states with large household debt imbalances, where negative housing wealth effects bite more strongly and borrowing constraints become more binding. Moreover, financial stability risks increase sharply in these areas as mortgage delinquencies and foreclosures surge, worsening banks’ balance sheets. Finally, monetary policy may have a stronger effect on housing tenure decisions in supply-inelastic states, where the homeownership rate and price-to-rent ratios decline by more. Our findings stress the importance of regional housing supply conditions in assessing the macrofinancial effects of rising interest rates.

The Housing Boom and Bust
The Housing Boom and Bust

Author: Thomas Sowell

Publisher: Basic Books (AZ)

Published: 2009-05-12

Total Pages: 194

ISBN-13: 0465018807

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Explains how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The "creative" financing of home mortgages and "creative" marketing of financial securities based on these mortgages to countries around the world, are part of the story of how a financial house of cards was built up--and then collapsed.

Global Liquidity, House Prices, and the Macroeconomy
Global Liquidity, House Prices, and the Macroeconomy

Author: Ambrogio Cesa-Bianchi

Publisher: International Monetary Fund

Published: 2015-01-29

Total Pages: 43

ISBN-13: 1484346033

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In this paper we first compare house price cycles in advanced and emerging economies using a new quarterly house price data set covering the period 1990-2012. We find that house prices in emerging economies grow faster, are more volatile, less persistent and less synchronized across countries than in advanced economies. We also find that they correlate with capital flows more closely than in advanced economies. We then condition the analysis on an exogenous change to a particular component of capital flows. We find that a global liquidity shock, identified by aggregating bank-to-bank cross border flows and by using the external instrumental variable approach of Stock and Watson (2012) and Mertens and Ravn (2013), has a much stronger impact on house prices and consumption in emerging markets than in advanced economies. In our empirical model, holding house prices or the exchange rate constant in response to this shock tends to dampen its effects on consumption in emerging economies.

Negative Interest Rate Policy (NIRP)
Negative Interest Rate Policy (NIRP)

Author: Andreas Jobst

Publisher: International Monetary Fund

Published: 2016-08-10

Total Pages: 48

ISBN-13: 1475524471

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More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area
One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area

Author: Giancarlo Corsetti

Publisher: International Monetary Fund

Published: 2020-06-26

Total Pages: 63

ISBN-13: 1513548743

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We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity, which we find to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. Building a small open economy model featuring a housing sector and calibrating it to Spain, we show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the responses of output and private consumption.

Bank Leverage and Monetary Policy's Risk-Taking Channel
Bank Leverage and Monetary Policy's Risk-Taking Channel

Author: Mr.Giovanni Dell'Ariccia

Publisher: International Monetary Fund

Published: 2013-06-06

Total Pages: 41

ISBN-13: 1484381130

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We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.

Inside and Outside Liquidity
Inside and Outside Liquidity

Author: Bengt Holmstrom

Publisher: MIT Press

Published: 2013-01-11

Total Pages: 263

ISBN-13: 0262518538

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Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.