Conventional Policy Research Articles

Identifying policy determinants of bank default risk during the COVID-19 pandemic: empirical evidence from the U.S. and Canada

ABSTRACT This study examines the policy determinants of bank default risk, proxied by credit default swap (CDS) spreads, using quarterly data from the U.S. and Canada for the period 2020 to 2022. The analysis considers four determinant groups: the COVID-19 pandemic shock, aggressive monetary and fiscal policy responses, macroprudential-related bank financial fundamentals, and macroeconomic and market conditions. Utilizing General Least Squares (GLS) and dynamic panel models with system General Method of Moments (GMM), the findings reveal that rising COVID-19 deaths significantly widen CDS spreads. Expansionary monetary policies reduce bank default risk, though the effectiveness under conventional monetary policy is reduced by increasing COVID-19 deaths. In contrast, expansionary fiscal policies and inflation broaden CDS spreads. The combined analysis highlights policy stances as dominant factors, with macroprudential-related fundamentals having minimal impact. The findings are robust using both 5-year and 10-year CDS measures. This study has significant policy implications during health and economic crises. For financial stability, policymakers should prioritize reducing pandemic-related deaths, utilize expansionary monetary policies with health support strategies, balance fiscal support to avoid excessive government spending, and implement measures to control inflation. It is essential to enhance coordination between healthcare, fiscal, and monetary authorities for effective policy implementation.

Contributions of ecological restoration policies to China’s land carbon balance

Unleashing the land sector’s potential for climate mitigation requires purpose-driven changes in land management. However, contributions of past management changes to the current global and regional carbon cycles remain unclear. Here, we use vegetation modelling to reveal how a portfolio of ecological restoration policies has impacted China’s terrestrial carbon balance through developing counterfactual ‘no-policy’ scenarios. Pursuing conventional policies and assuming no changes in climate or atmospheric carbon dioxide (CO2) since 1980 would have led China’s land sector to be a carbon source of 0.11 Pg C yr−1 for 2001–2020, in stark contrast to a sink of 175.9 Tg C yr−1 in reality. About 72.7% of this difference can be attributed to land management changes, including afforestation and reforestation (49.0%), reduced wood extraction (21.8%), fire prevention and suppression (1.6%) and grassland grazing exclusion (0.3%). The remaining 27.3% come from changes in atmospheric CO2 (42.2%) and climate (−14.9%). Our results underscore the potential of active land management in achieving ‘carbon-neutrality’ in China.

Monetary shocks and house prices in Europe

PurposeThe aim of this study is to analyse the effect of conventional and unconventional monetary policy shocks on housing price dynamics in Europe (2000–2020). We propose a pan-European comparative analysis at a city market level, contrary to the previous literature.Design/methodology/approachWe build a quarterly market dataset for 13 European cities (Paris, Lyon, Marseille, Berlin, Munich, Frankfurt, Amsterdam, Madrid, Barcelona, Seville, London, Birmingham and Manchester). We proceed in two steps. First, we develop a structural VAR (vector autoregression) model. Second, we conduct a forecast error variance decomposition analysis.FindingsWe show that a contractionary policy rate has a negative influence on house prices with relevant differences. A balance sheet shock displays a heterogeneous effect on housing prices. Globally, we observe that a conventional monetary policy shock explains a larger share of total housing price variance than an unconventional monetary policy shock. Finally, our results report that conventional and unconventional monetary policy shocks have a greater impact in more liberalized credit markets.Originality/valueWe develop a pan-European analysis of house prices at a market level for a sample of 13 European cities. A parsimonious structural VAR model is used to study the dynamics of conventional and unconventional monetary policies on house prices in major European markets: Paris, Lyon, Marseille, Berlin, Munich, Frankfurt, Amsterdam, Madrid, Barcelona, Seville, London, Birmingham and Manchester. Our results highlighting the relative importance of conventional and unconventional monetary shocks, identify the existence of heterogeneous effects of monetary policies in European city markets.

Using functional shocks to assess conventional and unconventional monetary policy in Canada

AbstractWe develop a new series of Canadian monetary policy shocks for the time period 1986 to 2023. Our shocks are constructed as the daily change in the Nelson–Siegel yield curve factors on days of monetary policy events such as announcements of the short‐run policy rate and speeches by Bank of Canada officials. This allows us to look at both conventional and unconventional monetary policy. We find that tighter monetary policy lowers inflation and GDP. Monetary policy shocks, however, often twist the yield curve, potentially offsetting changes in the short‐run policy rate. Finally, speeches also tend to move the yield curve with similar effects on inflation and GDP as formal policy announcements.

Conventional vs. unconventional monetary policy under credit regulation

Abstract We provide empirical evidence that the impact of quantitative easing (QE) programs on investment is weaker for countries with high-credit market regulations. We then extend a simple DSGE model with segmented financial markets to include credit regulation and examine its impact on the transmission of conventional and unconventional monetary policies. In our model, the government requires banks to hold a fraction of their assets in government debt. We show that the presence of such regulation can invert monetary transmission under QE policy: An expansionary QE program raises term premiums on corporate bonds and causes a contraction instead of an expansion in the economy. Such a perversion is absent under conventional policy. Further, in contrast to Carlstrom et al. (2017), we show that a simple Taylor rule welfare dominates a term premium peg under financial shocks, while the peg does better in the case of non-financial shocks.

Inhibiting or promoting? The impact of carbon emissions trading on corporate environmental responsibility

Carbon emissions trading (CET) policy presents a crucial market-oriented environmental strategy to shape corporate environmentally responsible behaviour. However, how market-oriented environmental strategy may affect corporate environmental responsibility remains to be further investigated. Based on the practice of China's CET, this paper investigates the impact of market-oriented environmental strategy on the environmental responsibility level of high‑carbon enterprises in China. The relevant results are threefold. 1) Contrary to conventional wisdom and CET policy expectation, China's CET policy discourages high‑carbon enterprises from fulfilling environmental responsibility, leading to an overall decrease of 32.6 % in the environmental responsibility level. 2) China's CET policy strengthens the financing constraints of high‑carbon enterprises, which makes them face a financial dilemma wherein it is challenging to balance environmental management and production operations in the absence of financial support. 3) Compared with non-state-owned enterprises and small- and micro-sized enterprises, the inhibitory effect of China's CET policy on the environmental responsibility level of state-owned enterprises (SOEs) and medium- and large-sized enterprises (MLEs) is stronger, whereas the inhibitory effect of financing constraints induced by China's CET policy on the environmental responsibility level of SOEs and MLEs is weaker.

Rethinking Human Security Through Feminist Lenses

At the beginning of the 2000s, the increased salience of the concept of human security was a welcome development both in academic and policy circles. Problematizing the state's central role as the principal object of security allowed human beings' security needs and concerns to be put in front and center, at least in theory, if not necessarily in practice. The increasing traction the concept got also allowed several non-traditional security threats, such as environment, health and migration, to be approached through security lenses and put on security agendas. Despite the burgeoning literature and the notable frequency at which the concept of human security got incorporated into policy discussions, it has lost, at least partially, its analytical traction and policy saliency. The lack of a clear definition as well as vague and tactical use of the concept by policymakers have raised concerns about the human security concept turning into an empty signifier. While the human security concept was welcome by some feminist approaches, it is also criticized by others. This article aims to discuss the human security concept through different feminist perspectives and understand its adaptability in the field based on a comparative interpretive analysis of feminist foreign policy initiatives by Sweden, Canada, Mexico, France, Germany, Spain, Chile and Luxembourg. To realize this aim, we analyze the conceptualization and implementation of feminist foreign policies and how they put the human security approach into practice. We seek to problematize how feminist foreign policies tackle the ambiguities and limitations within the human security framework, and to what degree these policies confront or maintain current power dynamics and state-centered security models. We argue that feminist foreign policies do highlight the problems related to gender equality and contribute to their solutions, but do not challenge patriarchy and the power relations behind it. As such, while they contribute to better implementation of human security as a guiding principle for foreign policy, conventional foreign policy concerns limit the change they can create on the ground.

Consumption tax cuts vs stimulus payments

Recent work shows that in macroeconomic models with non-Ricardian consumer behavior, uniform transfers are equivalent to interest rate cuts. That is, policymakers can use stimulus payments to substitute for conventional monetary policy when, say, the zero lower bound on short-term rates binds. We argue that in the same class of models, temporarily reducing consumption taxes delivers more stimulus than transfers — at the same cost to the taxpayer. Consumption tax cuts activate both income and substitution channels and prompt a strong response from all consumers across the wealth distribution. Simulating these policies in a quantitative heterogeneous agent New Keynesian model, we find output expands twice as much.

Modelling the green transition of the Chinese economy

This paper develops a stock–flow consistent (SFC) macroeconomic model with an energy sector for China to investigate the effect of green policies on green transition and the economy. We provide an analytical solution for green transition that illustrates the relative cost of using conventional energy with respect to renewable energy to determine the share of renewable energy and how the development of the energy sector promotes green transition. Our solution also demonstrates the necessity of green policies for a green transition. We calibrate the model to the national determined contributions (NDCs) scenarios from the Network for Greening the Financial System (NGFS) and run simulations from 2019 to 2035. The results show carbon taxes stimulate green transition but have a negative impact on the economy, accompanied by a reduction in economic growth, current account deficit and a rise in inflation. Carbon taxes deteriorate firms’ balance sheets. Governments benefit from carbon taxes in the short run but face a higher public debt to GDP ratio in the long run. Carbon taxes reduce carbon intensity and carbon emissions. We also compared the effect of green fiscal policy to conventional fiscal policies financed by carbon taxes (carbon rebate). Green subsidies benefit economic growth more effectively. They reduce inflation caused by carbon taxes and stimulate the green transition further.

The Distributive Impact of Unconventional Monetary Policies: Old and New

ABSTRACT In this paper we analyze the impact of less conventional monetary policy tools on the personal and functional distribution of income. We focus on the issuance of central bank digital currency (CBDC) in a comparative perspective, using a stock-flow consistent model of the eurozone economy. We consider two kinds of policies: helicopter money policies such as Quantitative Easing and the issuance of a CBDC; and scenarios not based on balance sheet expansions, such as an interest rate policy following the Pasinetti Rule, or a sterilized issuance of CBDC. Monetary policies using CBDCs tend to increase the wage share at the expense of financial rents. The targeted issuance of CBDCs to firms might produce an increase in GDP, corporate profits, and the wage share. The Pasinetti Rule reduces personal income inequality the most, but if applied mechanically, its impact on growth is also the least desirable.

Asymmetric effects of monetary policy shocks on financial stability

This study investigates the asymmetric effects of interest rate innovations on financial stress during times of conventional and unconventional monetary policy. We employ the methodology of Kilian and Vigfusson (2011) to examine the possible asymmetries between different monetary policy stances of the Fed and the ECB. The period under examination spans from 1999 to 2023, when the two central banks were active in conducting quantitative easing (QE) operations. The evidence reveals that the effects of implementing a contractionary or an expansionary monetary policy on financial stress are sign- and size-specific.

The cost to education development: A personal story

This personal narrative details the experiences of the founding director of the Institute of Education at the Higher School of Economics in Moscow, reflecting on the development of educational precedents in post-Soviet Russia. The text outlines the establishment and rise of a few new innovative educational organizations, marking their impact through innovative practices rather than conventional policy reforms. The author argues that creating educational precedents—specific, practical examples of successful education strategies—is more resilient and effective than broad policy reforms or regulatory innovations. These precedents, once established, tend to endure through their intrinsic merits and practical success, despite shifting political landscapes and regulatory environments. The personal story underscores the complex interplay between educational innovation and political reaction in Russia.

Taylor rules during a pandemic: a counterfactual exercise

ABSTRACT We conduct a counterfactual exercise to determine the potential effectiveness of conventional monetary policy to limit the economic damage caused by labour market uncertainties related to a pandemic. We model the labour market uncertainty as a second-order shock to a time-varying job separation rate. We show that the economic effects of heightened uncertainty in the job separation rate depend crucially on the Taylor-rule type adopted by the monetary authority. We explore the quantitative implications of pandemic-induced job separation uncertainty shocks under alternative interest rate rules and find that recessions following job separation uncertainty shocks are more severe under rules with no interest rate smoothing and strong inflation targeting.

Identifying Interest Rate Transmission Mechanism under a Bayesian Network

This study examines causal relationships among various short- and long-term interest rates in the Korean financial market to identify transmission channels. Monthly time series data from January 2015 to February 2024 were used, covering nine interest rates, including call rates, commercial paper (CP) rates, bank lending rates, and Treasury bond yields of different maturities. The study employs a Bayesian network to identify an acyclic causal structure between interest rates alongside a vector error correction model (VECM) to capture long-term equilibrium relationships and short-term dynamics. The findings reconfirm the traditional call rate transmission mechanism, aligning with conventional monetary policy views, demonstrating the call rate’s significant influence on bank lending rates, which affects corporate bond spreads and CP rates. Additionally, it reveals that 10-year Treasury bond yields form an independent interest rate transmission pathway, a finding not previously identified in the literature. These results underscore the need for coordinated monetary and fiscal policies due to the distinct transmission pathways of Treasury yields for sustainable macroeconomic management and growth.

Collaborative governance and effectiveness during emergency response actions in Norway

The challenges of emergency response often reflect wicked problems that transcend conventional public policy and require networked strategies. This article examines how the combination of hierarchical and network elements in the Norwegian model of “collaborative emergency preparedness” affects emergency outcomes. This model supports formal volunteer and public collaboration and enables a mix of command and network coordination. A survey of more than 1500 volunteers from Norway's major emergency response organizations shows that procedures, leadership, communication and technology significantly influence the quality of coordination and perceived effectiveness. Trust in the police and the volunteer's own organization also influences perceived effectiveness, depending on who is leading the operation. The results are, to a large extent, consistent with our integrated theoretical framework, showing that both formal and informal elements influence the response effectiveness in a hybrid governance system.

Taiwanese nurse educators' behaviour or intention to teach LGBT health content: A qualitative study.

To explore factors associated with Taiwanese nurse educators' behaviour or intention to teach lesbian, gay, bisexual and transgender (LGBT) health content. Nurse educators were found to have limited experiences and readiness to teach LGBT health content. However, limited evidence exists to comprehensively understand factors associated with nurse educators' behaviour and intentions to teach LGBT health content. A qualitative descriptive study design was adopted. A total of 24 nurse educators were interviewed. One-on-one interviews were conducted employing a semi-structured topic guide and were audio-recorded. Interview data were analysed using the socio-ecological model and constant comparative technique. This article was reported according to the Consolidated Criteria for Reporting Qualitative Research checklist. Most nurse educators had no experience of teaching LGBT health content and expressed their low or no intention to teach it. Factors associated with nurse educators' behaviour and intention to teach LGBT content were categorised by the socio-ecological model level: intrapersonal factors, interpersonal factors, community factors and societal and policy factors. This study identified multilevel factors associated with Taiwanese nurse educators' behaviour and intention to teach LGBT health content. Recommendations were provided to address multilevel barriers to diminish nurse educators' challenges in teaching LGBT health content. Supervisors of nurse educators should assess and discuss nurse educators' concerns and competencies regarding teaching LGBT health content. To address schools' or organisations' adverse climates and conventional societal atmosphere, related policies and regulations should be developed and implemented.

Quantitative easing and bank risk-taking: Evidence from the federal reserve's large-scale asset purchases

This study uses individual bank balance sheet data from the United States to investigate the effects of the Federal Reserve's large-scale asset purchases, which are commonly known as quantitative easing (QE), on bank lending standards and risk-taking behaviour. Covering all three phases of QE (QE1, QE2 and QE3), we find a consistent and significant reduction in bank lending standards during each phase, indicating that QE incentivised banks to extend relatively riskier loans while relaxing lending standards. We also compare the effects of QE with those of conventional monetary policy instruments, such as short-term interest rates. Despite short-term interest rates reaching the zero lower bound and continuing to influence bank risk-taking behaviour, our analysis suggests that the impact remains relatively stable over time. Consequently, we cautiously assert that QE is a more potent tool for stimulating economic activity, effectively substituting for the role of the monetary policy rate during periods when traditional monetary policy options are constrained.

Industry Impacts of US Unconventional Monetary Policy

Abstract Conventional monetary policy has been shown to create differential impacts on industry output. This paper looks at unconventional monetary policy to see its differential impacts on industries in the United States. Identification is achieved with zero and sign restrictions within a structural global vector autoregressive framework. The effects of unconventional monetary policy on output have substantial heterogeneity across industries. Furthermore, the effects on output and monetary policy transmission mechanisms are qualitatively similar to that of conventional monetary policy previously reported in the literature. These findings suggest a substitutability between conventional and unconventional monetary policies. Importantly, policymakers can use unconventional monetary policy and be reassured that impacts on specific industries are similar to those using conventional monetary policy.

International spillovers of conventional versus new monetary policy

We use a calibrated open-economy New Keynesian model to compare the spillovers from conventional and new monetary policy shocks from the US to Canada. We find that shocks with similar effects on the US GDP affect Canada’s private bond yield differently. For example, a forward guidance shock increases Canada’s private bond yield by 0.15%, however a quantitative easing (QE) shock decreases it by 0.13%. Our counterfactual policy simulations for the 2008 crisis show that (1) a more aggressive QE by the Fed would have resulted in a milder recession in the US but a steeper one in Canada. (2) If the Bank of Canada had followed the Fed’s QE policies, the drop in Canada’s GDP would have been much smaller. (3) Finally, if the Fed had implemented a mild negative interest rate policy, the effects on the Canadian economy would be similar to those of the benchmark zero-rate policy.

Can Conventional Monetary Policy Stimulate Bank Credit? Evidence from a Developing Country

The predominance of bank credit in financing the economies of less developed countries is prompting policymakers to stimulate this mode of financing. This study tests the ability of conventional monetary policy to stimulate the supply of bank credit to the private sector in Morocco. Based on the lending channel as a theoretical framework, an analytical framework to explore the conduct of monetary policy and the preconditions for the functioning of this channel was developed. In addition, a test of the impact of monetary policy on credit supply was conducted using bank-level data from a representative sample of the Moroccan banking sector. The results show that demand factors and the quality of potential borrowers are the main drivers of bank credit growth. They also show that monetary policy in Morocco directly affects credit growth. However, no evidence that this impact is mediated through credit supply was provided, indicating that the credit channel is not operational in Morocco. The policy implications of these results are discussed.