Area Monetary Policy Research Articles

The impact of central bank digital currency on the monetary policy of the Bank of Russia

Subject. This article deals with prospects and challenges of the impact of the Central Bank's digital currency (CBDC) on the monetary policy in Russia. Objectives. The purpose is to define the impact of digital ruble emission on the monetary policy pursued by the Bank of Russia. Methods. The study rests on general scientific research methods, including analysis, synthesis, comparison, generalization, and abstraction. Results. The paper substantiates the relevance and timeliness of the Central Bank's work to study the prospects for the introduction of digital currency as a response to challenges of modern comprehensive digitalization process. It considers goals, tools, methods of implementation, and strategic areas of monetary policy of the Central Bank of the Russian Federation, unveils multidirectional consequences for the monetary policy and financial stability of the Russian banking system from the implementation of the digital ruble project. It is noted that a positive aspect is an increase in the efficiency of transmission mechanism of the monetary policy influence on the Russian economy. I show possible actions of the regulator to prevent negative trends associated with redistribution of funds in favor of the digital currency. Conclusions. The impact of the introduction of the Central Bank's digital currency on the monetary policy and financial stability of the Russian banking system can be multidirectional. To minimize possible negative effects, it is advisable to gradually introduce the CBDC. This will enable timely identification of emerging problems and focus efforts on unlocking the positive potential of the digital ruble.

The transmission of bank capital requirements and monetary policy to bank lending in Germany

AbstractWe investigate the transmission of changes in bank capital requirements and monetary policy, and their interaction, on German banks’ corporate loan growth and lending rates. Our results show that increases in capital requirements are associated with an immediate decrease in total domestic and cross‐border bank lending. Changes in the euro area's monetary policy stance are positively related to corporate loan interest rates in general. Regarding the interacting effect of national bank capital requirements and euro area monetary policy, we observe that the transmission of accommodative euro area monetary policy to corporate lending rates can be attenuated by contemporaneous increases in bank capital requirements. Moreover, more strongly capitalized banks increase their loan growth in response to accommodative monetary policy whereas, for weaker banks, increasing capital requirements implies a decrease in their corporate loan growth. Our results confirm a tradeoff between higher capital requirements and accommodating monetary policy originating from banks’ capital constraints.

Does monetary policy in advanced economies have differentiated effects on portfolio flows to emerging economies?

This work analyzes whether the monetary policy in advanced economies (the US, the euro area, and the UK) had differentiated effects on portfolio flows from these countries toward EMEs. The results show the following: First, US monetary policy had a bigger impact on bond and equity investment to EMEs than the euro area or UK monetary policy. Second, investors' response to US monetary policy was mostly homogeneous. Among EMEs regions, foreign portfolio investment to Emerging Europe and Latin America was more volatile that than to Emerging Asia, probably because other factors such as investors' preference (in the case of bond flows) or expectations of firms' profits (in the case of equity flows) could play an important role in investors' decisions. These results could be useful for policymakers from EMEs as a benchmark to anticipate differentiated effects in portfolio flows caused by advanced economies' monetary policy.

ГРОШОВО-КРЕДИТНА ПОЛІТИКА ТА ФІНАНСОВЕ ПОСЕРЕДНИЦТВО В УМОВАХ ВИМОГ «БАЗЕЛЬ III»: ГЛОБАЛЬНІ ТЕНДЕНЦІЇ

Introduction. The article deals with the peculiarities of the transmission mechanism of monetary policy in the implementation conditions of the Basel Committee requirements on Banking Supervision "Basel III". The problem of the mechanism violation of the classical monetary multiplier, the imbalance of the monetary circulation system, the frequency increase of debt defaults and the amplitude of macroeconomic fluctuations in the global economic system are marked as a study result of the effects of the credit mitigation policy conducted by the US Federal Reserve amid the global financial crises of the last decade and changes in the nature of financial intermediation based on the synthesis of asset securitization and structured finance instruments. The purpose of this article is to investigate changes in monetary policy and financial intermediation in the implementation context of the Basel Committee on Banking Supervision Basel III as a source of imbalance in the global economy. Research methodology. The system method, method of scientific abstraction, methods of analysis and synthesis, statistical, comparison, generalization, scientific prediction were used. Results. The article deals with the implications of implementing the Basel Committee on Banking Supervision Basel I and Basel II in the area of monetary policy and financial intermediation; peculiarities of monetary multiplier mechanism operation in modern conditions are revealed; the possible consequences of implementing Basel III requirements for the mechanism of monetary supply formation in the world economy are analysed; the change in the role of gold as monetary metal in central bank foreign exchange reserves and the implications of these changes in terms of price dynamics and the distribution of real wealth in the global economy are examined. Conclusions. It is proposed to consider the requirements of the Basel Committee on Banking Supervision "Basel III" as such, which will exacerbate the volatility of global financial markets, increase the likelihood of increasing the frequency of debt defaults and, given the possibility of using gold as a means of redistribution of real wealth in the global economy, will cause an increase in the amplitude of macroeconomic fluctuations. Keywords: monetary policy; financial intermediation; the central bank; US Federal Reserve; Basel III; bank capital structure, monetary base; money multiplier, correspondent accounts; money supply; monetary gold; global economy.

From households to national statistics: Macroeconomic effects of Women's empowerment

How do shifts in intra-household gender dynamics affect the economy at large? This paper parametrizes intra-household gender-powered decision-making and endogenous distributions of income to allow for the aggregation of key macroeconomic variables. In equilibrium, we find that greater women's empowerment increases precautionary savings to offset low endowment realizations. The effect is stronger among poor households who hedge against hitting a subsistence bound. Given the boost in savings at the bottom of the distribution, more empowerment leads to less poverty and lower income inequality. Another equilibrium prediction of the model is an increase in the household's food intake regardless of income, reflecting women's greater preference for food compared to men. The model's predictions are mapped to Mexico's 2014 National Household Income and Expenditure Survey which identifies the gender of the head of the household. These predictions have policy implications in the areas of monetary policy, social policy, financial intermediation and banking.

Polish Commercial Banks’ Efficiency in 2009–2016 under Stress Conditions for Recapitalization

In response to the outbreak of the global financial crisis, central banks and regulatory and supervisory bodies undertook a number of measures to mitigate the effects of the crisis and minimize its impact in the future. Changes were also made in Poland in 2009–2016, among others, in the areas of monetary policy (since 2015 interest rates have been at historically low levels), prudential regulations, the functioning of the deposit guarantee scheme, structured bankruptcy, and the so-called bank tax. The aim of this study is to attempt to answer the question of how changes in monetary policy and the regulatory environment affected the efficiency of banks in Poland. The study period was the years 2009–2016 and the sample consisted of the seventeen largest banks, divided into two groups. The division criterion was the value of the solvency ratio as a measure of a bank’s capital strength (the limit value adopted was the total capital ratio of 9%). Based on the research conducted, it can be argued that despite the fact that banks with lower capital ratios still achieve higher profitability on banking operations, better capitalized banks have significantly compensated for the gap by further improving the return on assets compared to less capitalized institutions.

EUROPEAN LESSONS OF DECENTRALIZATION

The role of the state in the processes of European integration and decentralization is analyzed, the factors of threats for it are determined. The following common features of decentralization processes in the EU member states are highlighted as strengthening the role of the regional level, the need to choose between different models of separation of powers between different levels of government (exclusive or joint authority) and the search for ways to adequately finance transferred powers. Decentralization also actualizes the problem of territorial inequality and patronage for European countries. It is proved that the national state is a central actor in the process of decentralization, despite the fact that this process creates certain threats to the state itself. On the one hand, the EU as a supranational organization has already limited some aspects of the sovereignty of its member states, in particular, in the area of monetary policy. With the deepening of European integration, the powers of national states and in other areas are increasingly limited. On the other hand, the gradual increase in the share of powers conveyed by the state to decentralized and regional authorities further weakens its role. Moreover, the increasing influence of liberalism on state policy and the introduction of competition among the main providers of public services also limits the possibility of the state’s influence on its internal policies. Such a dynamics gives grounds for questioning the ability of states to effectively manage their territories. At the same time, it was noted that in most EU member states, the bodies of state power have long been the guarantor of national unity in both social and territorial terms. Such a “unity of opposites” (decentralization and centralization) is unlikely to change in the medium term.

EUROPEAN LESSONS OF DECENTRALIZATION

The role of the state in the processes of European integration and decentralization is analyzed, the factors of threats for it are determined. The fol- lowing common features of decentralization processes in the EU member states are highlighted as strengthening the role of the regional level, the need to choose between different models of separation of powers between different levels of go- vernment (exclusive or joint authority) and the search for ways to adequately fi- nance transferred powers. Decentralization also actualizes the problem of territo- rial inequality and patronage for European countries. It is proved that the national state is a central actor in the process of decentralization, despite the fact that this process creates certain threats to the state itself. On the one hand, the EU as a supranational organization has already limited some aspects of the sovereignty of its member states, in particular, in the area of monetary policy. With the deepening of European integration, the powers of national states and in other areas are in- creasingly limited. On the other hand, the gradual increase in the share of powers conveyed by the state to decentralized and regional authorities further weakens its role. Moreover, the increasing influence of liberalism on state policy and the introduction of competition among the main providers of public services also li- mits the possibility of the state’s influence on its internal policies. Such a dynamics gives grounds for questioning the ability of states to effectively manage their ter- ritories. At the same time, it was noted that in most EU member states, the bodies of state power have long been the guarantor of national unity in both social and territorial terms. Such a “unity of opposites” (decentralization and centralization) is unlikely to change in the medium term.

The Transparency of the European Central Bank in the Single Supervisory Mechanism

Abstract Not least due to the relatively short period of existence of the Single Supervisory Mechanism (SSM), the transparency of the European Central Bank (ECB) in the SSM has not attracted significant attention from legal scholarship. This contribution seeks to close this gap to some extent by mapping out the ECB’s transparency regime within the SSM and illustrating, where relevant, the notable differences not only with the transparency regime applicable in the area of monetary policy, but also the general transparency regime of the EU. Die Transparenz der Europaischen Zentralbank im Einheitlichen Bankenaufsichtsmechanismus Zusammenfassung Rechtswissenschaftliche Abhandlungen haben den Transparenzbestimmungen des einheitlichen Aufsichtsmechanismus (Single Supervisory Mechanism – SSM) noch keine allzu grose Aufmerksamkeit geschenkt. Dieser kurze Beitrag zielt darauf ab diese Lucke ein Stuck weit zu schliesen. Dazu werden die im Rahmen des SSM auf die EZB anzuwendenen Transparenzbestimmungen einer ersten ...

Review of Monetary Policy of India Since Independence

Monetary Policy is the policy which looks after the supply of money into the economy, keeps record of inflation and takes into account the economy’s growth. Central bank of a country conducts the monetary policy of that country. Reserve Bank of India (RBI) is the central bank of India hence regulates the monetary policy of the country. RBI formulates implements and supervises all the functions of monetary policy. Indian Monetary Policy has seen many structural changes since independence. During early 1990s, the major monetary policy measures were Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR). In case of India, it has been seen that the increase in inflationary pressure is mainly due to the money demanded by the central government to meet the budgetary deficit of the country. If we talk about the recent development in monetary policy of India, we see that Monetary Policy Committee (MPC) has been constituted after the recommendation of Urjit Patel Committee in the year 2016. Establishment of MPC is considered to be a revolutionary development in the area of monetary policy. This paper intends to take a review on the monetary policy of India, changes that have been made to tackle the economic instability in the past and the recent developments in monetary policy of the country. It also intends to test the monetary policy with respect to pressure on inflation. This research paper is entirely on the secondary data. Different journals, books and other research papers within the same context have been followed for this paper.

Aggregate Effects of Womenn's Empowerment

How do shifts in intra-household gender dynamics affect the economy at large? This paper parametrizes intra-household gender-powered decision-making and endogenous distributions of income to allow for the aggregation of key macroeconomic variables. In equilibrium, we find that greater women's empowerment increases precautionary savings to offset low endowment realizations. The effect is stronger among poor households who hedge against hitting a subsistence bound. Given the boost in savings at the bottom of the distribution, more empowerment leads to less poverty and lower income inequality. Another equilibrium prediction of the model is an increase in the household's food intake regardless of income, reflecting women's greater preference for food compared to men. The model's predictions are mapped to Mexico's 2014 National Household Income and Expenditure Survey which identifies the gender of the head of the household. These predictions have policy implications in the areas of monetary policy, social policy, financial intermediation and banking.

And Indeed It Was a (Failed) Nullification Crisis: The OMT Judgment of the German Federal Constitutional Court and the Winners and Losers of the Final Showdown in the OMT Case

The aim of the present article is twofold. Firstly, to put the German Federal Constitutional Court (i.e., the BverfG) judgment into the context of a drawn-out conflict between the German Republic and the European Union regarding the setting up of a crisis management tool in the area of monetary policy (the SMP program in 2010 and the OMT program in 2012); secondly, to contest what the BVerfG claims in its judgment, namely that the European Court of Justice's judgment accepted the “requests” of the German Court issued in its preliminary reference. The opposite is true: the BVerfG had to bring its judgment into line with the Gauweiler judgment.

The Institutional Framework of the Gulf Central Bank

As the 2010 deadline for the Gulf Monetary Union (GMU) approaches, the institutional and governance structure of the Gulf Central Bank is becoming a pressing priority. The Ministers of Economy and Finance from the GCC will be meeting from September 17 to 18 to discuss a proposal on this topic and send a recommendation to the Heads of State at their annual Summit to be held in Muscat in November 2008. This report discusses the viable alternatives for a suitable institutional and governance framework for the policy making body presiding over the GMU. We review a series of alternatives from the simplest one (i.e. a Governors Council formed by theGovernors of the national Central Banks and Monetary Authorities, each endowed with a single equal vote), to the more elaborate ones, involving the set up of a supranational institution, a Gulf Central Bank (GCB) with permanent staff, an appointed President and an Executive Board, which together with the national governors would form a Monetary Policy Council (MPC) responsible for the setting of monetary policy instruments and taking decisions in all the main areas of monetary policy. The members of the MPC could be given equal voting rights, or a voting power weighted according to the economic and financial size of each country, with some corrective counterweight mechanism such as a specific voting weight for the President and/or the Executive Board to provide checks and balances.The solution we feel markets (and possibly the public) would find more credible and suitable would be one involving the creation of a new Gulf Central Bank with its own staff and an Executive Board, because it would strengthen the authority and sustainability of the institutional arrangement and create an organisation that is an effective counterpart of the other major international central banks and financial markets. Highly qualified professionals from international markets, national central banks and international institutions could be recruited to foster a process of cross fertilisation, critical for the future of an area whose international economic and financial weight is growing and is increasingly important for global financial stability. An additional factor deserves special attention: international investors and central banks around the world would be keenly interested in holding assets denominated in the new GCC common currency, as a safe haven and a hedge against oil shocks and inflation, thereby boosting its international role. The new currency will clearly be among the five major currencies in the world. This would also boost the sophistication of local GCC financial markets, extend their depth and strengthen their governance.The intermediate phase in the run up to the launch of the single currency should not be left to a temporary institution, like a monetary institute with weak powers. The GCB must be created as soon as possible with a strong mandate to clear the obstacles while testing and fine tuning the decision-making mechanisms in all areas. Recent financial turbulence and global financial uncertainty inject a sense of urgency into the project: the increasing international economic and financial openness of the GCC countries requires policy coordination and concerted action within a well-conceived economic policy framework, to avoid the risk of being swept by developments that individual countries do not have the power to resist or control.

Inflation Targeting: To Forecast or To Simulate?

Perhaps the most notable development in the area of monetary policy over the last decade is the growing popularity of inflation targeting. This regime is based to a great extent on communication and, more specifically, on using and communicating assessments of future inflation. The central banking literature, however, devotes surprisingly little attention to some important issues connected with such assessments. There are some non-trivial choices that need to be made regarding future inflation assessments on three distinct levels: construction, decision making and communication. One of the most important choices relates to the treatment of central bank’s behaviour within the assessment. We differentiate between forecast and simulation as two basic ways of assessing future inflation and we discuss the pros and cons of using the two ways of assessing future inflation on the three above-mentioned levels.

Monetary policy towards E(M)U accession: A central banker's view

This paper gives a brief overview of the main economic issues related to the forthcoming integration of the new EU member countries into the euro area. Subsequently, it will discuss in more detail three broad issues concerning the monetary side of EU enlargement. First addressed is the timing of euro area enlargement and monetary policy regimes in the run up to the EMU. The next focus is on the ERM II as an interim step towards the euro area. Third, the author expresses his views on the future of the ECB and the euro area, which the Czech Republic will have an opportunity to co-determine after its entry.

When are Monetary Commitments Credible? Parallel Agreements and the Sustainability of Currency Unions

This article investigates the conditions which make it costly for governments to renege on institutional commitments governing monetary policy. Focusing on one such type of commitment – monetary integration – we develop and test a hypothesis which suggests that the presence of parallel international agreements plays an important role in raising the costs of exit for states which might otherwise withdraw from a monetary union. While existing political economy work on credible commitments in the area of monetary policy has had a heavy focus on countries in the European Union, we broaden the inquiry, using quantitative and qualitative evidence from the numerous African countries which have participated in monetary unions over the last forty years. Our results provide strong support for the parallel agreements hypothesis. A common argument found in the work of both economists and political scientists is that adopting certain institutional arrangements can allow for credible commitment in the area of monetary policy. At the domestic level analysts have observed that central bank independence and/or the establishment of an exchange rate peg may increase credibility of monetary policy. At the international level, authors have suggested that establishing multilateral pegging arrangements, such as the European Monetary System (EMS) or a full-fledged monetary union may lend credibility. While the literature on the credibility-enhancing effect of certain monetary policy institutions is voluminous, analysts have not devoted sufficient attention to a crucial issue; if a state can do away with an institution such as an independent central bank or participation in a monetary union without significant cost, then the credibility effects from establishing these institutions will be marginal. 1

THE EFFECT OF FEDERAL RESERVE POLICY ON THE CYCLICAL MOVEMENT OF THE MONEY SUPPLY*

THIS IS A STUDY of the relation between Federal Reserve policy and the cyclical movement of the money supply. Attention is restricted to monetary policy as conducted by the Federal Reserve System through its general credit controls-openmarket operations, rediscount rates, and reserve requirements. Three basic assumptions are made: (1) the money supply is an important independent economic variable; (2) the Federal Reserve does have the ability 'to influence the money supply; and (3) the Baude method does isolate and measure cyclical movements of the money supply. The money supply concepts employed were various combinations of demand deposits, currency in circulation, time and saving deposits, and government deposits. The cyclical patterns yielded by the various measures were almost identical. The cyclical patterns were derived by the Baude method of cycle analysis which uses a system of difference equations. It is predicated on the assumption that trend forces over a period of time can be represented by a low-order equation while cycle forces can be represented by a sine curve. Thus the influence of trend will be eliminated by a process of successive differences while the influence of the cycle will not. The Baude method identifies four phases in the cyclical pattern-phase I from the cycle peak to the falling point of inflection; phase II from that point to the cycle trough; phase III from the cycle trough to the rising point of inflection; and phase IV from that point to the cycle peak. Cyclical forces are contractionary during phases I and II and expansionary during phases III and IV. Countercyclical policy with respect to the money supply would thus require expansionary policy during phases I and II and restrictive policy during phases III and IV. The study consists of four sections: (1) concepts and issues in the area of monetary policy; (2) concepts of the money supply and the cyclical patterns therein; (3) theory of general credit controls; and (4) the historical, empirical examination of the influence of Federal Reserve policy on the cyclical movement of the money supply. The historical chapters relate the chronology of Federal Reserve policy to the cycles in the money stock as isolated by the Baude method. These relations lead to three general findings as follows: