Central Bank Policy Research Articles

Features of the functioning of currency market in crisis conditions

The article reveals the peculiarities of the functioning of foreign exchange markets in a crisis. The influence of modern geopolitical factors on the development of foreign exchange markets was analyzed. The main instruments for regulating currency markets in crisis situations are presented, among which the most effective instrument is the monetary policy of central banks.

Sensitive intervention points: a strategic approach to climate action

Abstract While some countries are making progress reducing greenhouse gas emissions, few are progressing rapidly enough to be on track to reach net zero emissions by mid-century. The transition to net zero involves deep structural transformation of the global economy and its associated complex socio-technical systems. Here, we set out a conceptual framework to identify ‘sensitive intervention points’ (SIPs) in systems where a small or moderately-sized intervention could drive outsized impacts and transformational change. These points take three forms: (i) critical tipping points, such as a critical price threshold, (ii) critical nodes in networks, such as an influential actor in a social network, and (iii) critical points in time, where windows of opportunity for change open up. We also propose an assessment methodology for prioritizing interventions in terms of their potential impacts, risks, and ease of implementation. We apply our framework and assessment methodology to evaluate a list of proposed interventions for accelerating global decarbonization. Promising interventions include investing in key clean energy technologies with consistent cost declines, introducing central bank policies to reduce the value of polluting collateral, and enhancing climate-related financial risk disclosure.

Central bank policies and financial markets: Lessons from the euro crisis

In a novel econometric framework, we identify differences and significant asymmetries in financial markets' responses to the European Central Bank (ECB)'s various policy interventions during the eurozone crisis. Dollar liquidity interventions reduced stress in bond markets and improved economic sentiment, as reflected in higher equity prices. In contrast, the ECB's euro liquidity provisions and monetary stimulus measures delivered modest results. In both these cases, government bond spreads typically did decline but the risk of large spread increases and equity losses also increased. Only the Outright Monetary Transactions (OMT) intervention had a substantial expansionary effect. The results emphasize the importance of unambiguous monetary policy for driving market expectations.

Monetary Policy and Investment in ASEAN-5 Countries

Central bank policy interest rate has a role in economic activity such as investment in 5 ASEAN countries. The occurrence of the Asian Financial Crisis (AFC) in 1997-1998 changed the number of investments in the ASEAN-5 countries that were previously the destination of investors from developed countries. The declining level of economic and industrial stability in ASEAN-5 countries has reduced investor interest in investment. However, after AFC, from 2000 to 2019, 5 Southeast Asian countries (Singapore, Indonesia, Malaysia, the Philippines, and Thailand) experienced an increase in investment. This study aims to analyze the effect of Central bank policy interest and macroeconomic variables such as GDP, Exchange Rate, Inflation, and Labor rate on investment in 5 ASEAN countries. The analytical method used in this study is Panel Autoregressive Distributed Lag (ARDL) with Pooled Mean Group (PMG) estimation. The results showed that the Central bank policy interest rate, Inflation, and Labor have a positive and significant effect on investment in the long term. Meanwhile, in the short-term, GDP has a positive and insignificant effect on investment.

Impact of Distributed Ledger Technology (DLT) and Fintech Investment on Central Bank Policy and Monetary Policy Effectiveness


 
 
 Central banks confront enormous hurdles in preserving the efficiency of their monetary policies in the face of rapid technological improvements in the financial industry. The effects of Distributed Ledger Technology (DLT) adoption, fintech investment, and regulatory flexibility by central banks on the effectiveness of monetary policy is investigated in this paper. Data were gathered quantitatively through surveys of financial professionals, policymakers, and central bank officials. The findings demonstrated that DLT adoption, fintech investment, and regulatory flexibility have a considerable positive effect on the effectiveness of monetary policy. The study not only validates but also extends previous material and provides policymakers with practical consequences. Limitations and future research directions are also highlighted.
 
 

Banking Sector Reforms and Financial Intermediation in Nigeria

This study examined the effect of banking sector reforms on financial intermediation of commercial banks in Nigeria. Panel data were sourced from Central Bank of Nigeria Statistical Bulletin and financial statement of the commercial banks in the pre consolidation and post consolidation reforms. Multiple regression models were formulated to examined and compare the effect of the pre-consolidation reforms and post consolidation reforms on financial intermediation. Nine commercial banks that bear the same name in the pre and post consolidation reforms were used as sample size. Supply side and demand side financial intermediation were proxies for dependent variables while capital reforms, interest rate reforms, Central bank policy reforms, bank competition, management quality, assets quality, market risk and liquidity reforms were proxies for independent variables. The study employed panel data regression models of pooled effect, fixed effect and random effect models. After cross examination of the models using the Hausman test, the fixed effect models were used. The study found that 97.7 percent variation in demand side financial intermediation of the pre consolidation reforms was explained by variations in banking sector reforms and interest rate reforms and capital reforms have positive but no significant effect, bank competition have negative and significant effect while Central bank reforms have positive but no significant effect on demand side financial intermediation in the pre-consolidation reforms. 67 percent variation in demand side financial intermediation of the post consolidation reform was explained by variation in banking sector reforms and interest rate reforms, central bank reforms and bank competition have positive but no significant effect on the demand side financial intermediation while capital reforms have negative and no significant effect on demand side financial intermediation in the post consolidation reforms. 97.7 percent v

Reaction of Indian Stock Market to Outbreak of COVID-19: An Empirical Analysis of Extreme Inter-day Movements

The contagious COVID-19 pandemic has been considered a massive global crisis since World War II and has disturbed business and economic activities across the globe. The current study examined the reaction of the stock market’s to the outbreak of COVID-19, considering the extreme inter-day movements in the Indian stock market. The extreme inter-day movements in S&P CNX Nifty-50 have been identified during the study period from January 2020 to December 2021 and further classified into decline and gain events based on positive and negative announcements related to COVID-19. The study utilized an event study approach and panel regression for empirical investigation. The results of the event study analysis illustrate that the significant abnormal loss ranges from 12.86% to 2.47% for the major decline events and significant abnormal return from 8.43% to 3.23% for the gain events. The regression analysis results showed that real return and Central Bank Policy rate have a considerable impact on the abnormal returns during COVID-19. The study’s findings are helpful to policy implications that identified the need to focus on financial education and strengthen the health and finance-related policies to deal with such pandemics in the future.

통화정책과 금융여건을 고려한 한국의 잠재GDP 추정

The policies of central banks, financial conditions, and economic fluctuations are not entirely independent; nevertheless, the conventional method for estimating potential GDP has the convenience of considering supply or real factors independently, potentially leading to biases in estimating the GDP gap that represents economic fluctuations. In this paper, we estimate potential GDP using a multivariate filtering approach that incorporates monetary policy and financial conditions during the period from 1996 to 2011. According to the estimation results, the level of potential GDP during the years 2003 to 2005 experienced a significant decline, and the GDP gap was observed to have a positive value. Despite this, expansionary economic policies were predominantly implemented during that time, which can be attributed to the limitations of the conventional method for estimating potential GDP. The findings of this study hold implications for future monetary policy formulation.

Commercial Banks and Real Sector Credit: A Comparative Study of Pre and Post Consolidation Reforms in Nigeria

This study examined the effect of banking sector reforms on real sector credit in Nigeria. Panel data were sourced from Central Bank of Nigeria Statistical Bulletin and financial statement of the commercial banks in the pre consolidation and post consolidation reforms. Multiple regression models were formulated to examined and compare the effect of post consolidation reforms on demand side financial intermediation. Nine commercial banks that bear the same name in the pre and post consolidation reforms were used as sample size. Real sector credit was proxies for dependent variables while capital reforms, interest rate reforms, Central bank policy reforms, bank competition, management quality, assets quality, market risk and liquidity reforms were proxies for independent variables. The study employed panel data regression models of pooled effect, fixed effect and random effect models. After cross examination of the models using the Hausman test, the fixed effect models were used. The study found that 53.4 percent of the systematic variation in the real sector credit in the pre consolidation reforms and market risk has positive and significant effect on real sector credit while management quality, bank liquidity reforms and assets quality have negative effect on real sector credit in the pre consolidation reforms. The estimated model found that 78.1 percent of the systematic variation in the real sector credit in the post consolidation reforms while bank liquidity have negative and no significant effect on real sector credit while management quality, market risk and assets quality have positive effect on real sector credit in the post consolidation reforms. The study concludes that post consolidation reforms have significant effect on real sector credit. The study recommended that the Central Bank of Nigeria should continue with its banking sector reforms such as increase capital base as this can encourage substantial credit allocation to the prior

Dynamic framework for strategic forecasting of the bank consumer loan market: Evidence from Ukraine

Accurate forecasting of consumer loan market behavior gives banks a huge potential to optimize their credit strategies by proactively adapting to external changes. This study aims to analyze and predict consumer loan demand, supply, and profitability in the Ukrainian banking sector. Using a systemic dynamic approach, the interplay of five key factors is considered: central bank policies, GDP fluctuations, changing competitive landscape driven by FinTech companies, investment in government bonds as an alternative to loan granting, and severity of credit risk management.The developed dynamic model for the bank consumer loan market in Ukraine offers predictive capabilities enhancing decision-making and strategic planning in the banking sector and can be adapted in open small economies. Within the proposed systemic dynamic model, five scenarios were explored. Compared to the base scenario, a 4 p.p. increase in the key policy rate results in UAH 4.7 billion decrease in demand for bank consumer loans and a UAH 0.55 billion reduction in lending profitability based on the year’s results. Fall in GDP by 6 p.p. leads to a decrease in the supply of bank consumer loans by UAH 6.9 billion and a decrease in lending income by UAH 1.3 billion based on the year’s results. Scenario with the decline of FinTech portfolio by 20 p.p. quarterly leads to an increase in demand for bank consumer loans of UAH 8 billion. A 4 p.p. rise in government bond yields leads to a UAH 17 billion reduction in the supply of consumer loans in the same quarter.

Central Bank COVID-19 Policy and Equities Market Sensitivity in Europe and the U.S.

With the beginning of the COVID-19 pandemic, the Federal Reserve (Fed) as well as the European Central Bank (ECB) have pursued a very expansionary monetary policy to mitigate potential economic impacts. In 2022, inflation fears caused bond yields to rise significantly, and the prevailing academic view is that this environment has a negative impact on stock market performance and high-growth stocks in particular. In this paper the performance of stock markets STOXX Europe 600 and S&P 500 is analysed in relation to the central bank policy from 2020 to 2022. The assumption is that the outperformance of single sectors was due to interest rates and a mean-reversion process will occur in 2022. The results of the paper show no significant correlation between interest rates and sector outperformance but between both indices. On this basis, further research on individual sectors, stocks, and other possible variables such as inflation is recommended.

ABROAD EXPERIENCE OF MONETARY POLICY OF CENTRAL BANKS DURING THE WAR

The article examines the experience of conducting monetary policy of central banks during the war in different countries of the world, depending on the monetary management system. Solving the problems of the functioning of the state's economy during military operations and in the period of post-war reconstruction is an urgent scientific and practical task. The main lever for ensuring the sustainable development of the economy is the flexible monetary policy of the state. The ability of the state to mobilize financial resources, maintain its own currency and continue to lend to the economy are among the main factors of victory and subsequent post-war recovery. It has been established that in the vast majority of countries, the main principle of modern monetary policy is to ensure price stability. Price stability, aggregate demand, credit and investment activity, economic growth, and therefore the readiness of the economy to resist external aggression depend on the effectiveness of monetary policy. It is outlined that one of the main prerequisites for the successful application of the chosen monetary policy of the state is to take into account the current economic situation in the country and to develop such instruments of monetary influence on economic processes that would maximally take into account national specificities and neutralize the influence of negative factors on the transmission channels of monetary regulation.

Reverting to Restraint: A Keynesian Intermezzo and Neoliberalism in the Netherlands (1971–1977)

In line with recent studies revealing the role of neoliberalism in Dutch post-war history, this article highlights the influence of neoliberal ideas during the first half of the 1970s. In addition to a clear orientation towards supply-side economic policies and a firm tradition of fixed budgetary rules, the author emphasises the importance of Dutch monetarism in guiding Central Bank policies and prioritising monetary objectives such as price stability, fixed exchange rates and balance of payment equilibrium over Keynesian policy goals. A short-lived Keynesian intermezzo of countercyclical demand-management commenced in March 1974, after which rules-based, stability- and supply-side economic, financial and monetary policies started to regain the upper hand in 1976.

How do government bond yields respond to monetary policy? Evidence from Vietnam

This paper analyzes the impact of monetary policy, banking liquidity, and macroeconomic factors on the government bond yield in Vietnam by employing a VAR model. Our findings show that the central bank policy interest rate plays a significant role in government bond yield both in the short- and long-term. There was a downward trend of government bonds in the period 2007–2019 thanks to the improvement of banking system liquidity as well as macroeconomic stability. The results are robust when the government bond yield is computed by three factors, including level, slope, and curvature.

Where is the Euro Area headed? Restoration of price stability

After the two recent global shocks of the COVID-19 Pandemic of 2019–2021 and the Russian invasion of Ukraine in February 2022, the 2023–24 economic priority for the Euro Area is the fight against inflation in the midst of global economic and financial uncertainties. We focus on Euro Area inflation, analyze its diagnostics, examine inflation expectations, review theories of inflation and evaluate monetary and fiscal policies prompted because of COVID-19. Then we explore policies of the European Central Bank to fight inflation and conclude that restoration of price stability in the Euro Area will remain its central focus during 2023 and 2024.

Bàn về một số phương pháp lượng hóa rủi ro tỷ giá

Exchange rate is the price of one currency expressed in terms of another currency. The fluctuation of the exchange rate depends on both domestic factors and foreign factors, in which changes in interest rate policies of central banks become a factor that causes exchange rates to fluctuate rapidly, significantly, and unpredictably. From the beginning of 2022 up to now, inflation has been exploded all over the world, including the US, EU and developed countries, forcing central banks to apply tight monetary policies by raising interest rates. During the period from the beginning of 2022 until now, the US Federal Reserve (Fed) has raised interest rates 8 times with a very high frequency and great intensity, causing the USD to be appreciated against most currencies, including VND. When the exchange rate fluctuates, it will affect almost all of economic activities such as import-export activities, foreign investment, international trade competitiveness, and even businesses and consumers that do not generate receipts or payments in foreign currency. Therefore, the study of measurement of exchange rate risks has become increasingly important from the perspectives of both theory and practice

What determines passthrough of policy rates to deposit rates in the euro area?

Interest rates on bank deposits are sticky and move only sluggishly following changes in central bank policy rates. As deposits are typically the largest share of bank liabilities, deposit rate stickiness plays a key role for bank funding costs and profitability.

Information policy of the Bank of Russia and the central banks of other countries

Subject. The information policy of the central bank plays an important role in increasing transparency and confidence in the actions of the central bank. It also has a significant impact on the expectations of economic agents. In recent years, the Bank of Russia has taken a number of measures aimed at increasing the transparency of the monetary policy. Its information policy has undergone significant changes due to the transition to the inflation targeting regime in 2014-2015. For a long time, economists and researchers have had controversial opinions about the impact of central banks’ information transparency on the economy. The development of financial institutions, monetary policy instruments, and its goals have created new conditions for and requirements to the regulators’ information policy. Objectives. An original study of the content of the information policy of the Bank of Russia and the central banks of other countries, as well as its evolution stipulated by the transition to the inflation targeting regime, their comparison to determine common or distinctive features. An assessment of their adequacy and whether it is reasonable to adjust the information policy of the Bank of Russia in order to increase its credibility and to stabilise inflation expectations. An analysis of changes in the awareness of the population of Russia about the monetary policy during the period preceding to the complete transition to the inflation targeting regime and at present time. Methodology. In our study, we used the empirical method of comparison and the following theoretical methods: dialectical and the method of analysis and synthesis based on the study of relevant literature dedicated to the topic. MS Excel package was used to analyse and visualise the results. Results. The study involved comparing the communication policy of the Bank of Russia during the period preceding to the introduction of the inflation targeting regime and preparation to it (2012) and after several years of its operation (2021). It also analysed the influence of the expansion of communication channels on the dynamics of expectations of the population of Russia regarding future annual inflation. The communication policies of central banks of other countries targeting inflation were studied and used to develop recommendations on how to improve the effectiveness of the information policy and the monetary policy of the Bank of Russia as a whole. Conclusions. A comparison of information materials of the Bank of Russia for the period preceding to the preparation for the transition to the inflation targeting regime (2012) and the present time (2021) showed that the Bank of Russia increased the number of regularly published information messages and analytical materials by almost 3 times. A comparison of the information policy of the Bank of Russia and central banks of other countries revealed that taken as a whole the number and content of published materials corresponds to generally accepted international standards, including the practice of countries with a longer experience of inflation targeting. Works dedicated to the topic were studied and the benefits of using certain types of communications in other countries were assessed. As a result, recommendations were developed on how to improve the effectiveness of both information policy and monetary policy as a whole.

Exploring the performance of US international bond mutual funds

AbstractWe use a Bayesian regime switching approach to examine the performance enhancement of adding US international bond funds to a domestic bond universe pre and post the Global Financial Crisis (GFC) during January 1999 and May 2022. We find that the international bond funds provide large significant performance enhancement pre the GFC, with an increase in Certainty Equivalent Return (CER) performance of 0.595% (monthly), but none post the GFC. The performance enhancement pre GFC is driven by Large Emerging Market bond funds, which is likely fueled by a substantial drop in the Emerging Market central bank policy rates pre GFC.

PENGARUH TINGKAT SUKU BUNGA DAN INFLASI TERHADAP KREDIT KONSUMSI DI INDONESIA

The purpose of this study is to analyze the effect of interest rates and inflation on consumer credit in Indonesia. The multiple regression model is used in this study from 2018 to 2022. Interest rates and inflation are significant to affect consumer financing demand in Indonesia. The research results show that interest rates and inflation are known to influence demand for consumer financing in Indonesia. Central bank policy, as a reference and policy maker, must keep interest rates stable to channel consumer credit to people who lack funds and loans to banks to meet their consumption. The government is expected to be able to reduce the rate of inflation and make it easier for people to consume the goods they want at relatively stable prices