Central Bank Policy Research Articles

ROLE OF FINANCIAL INSTRUMENTS IN ENSURING LIQUIDITY AND STABILITY OF THE CURRENCY MARKET OF UKRAINE IN THE CONDITIONS OF MILITARY CONFLICT

In the conditions of military actions, liquidity of the currency market is of critical importance for the financial stability and security of the state, which stipulates significant relevance of the issue of instruments of liquidity provision. The research aims to identify the influence of the instruments of the National Bank of Ukraine (NBU) on the liquidity of the currency market of Ukraine within the context of long-term military conflict.The methods of regression analysis, correlation analysis, and analysis of variance were used in the study to determine the leading factors that influence the liquidity of the currency market in Ukraine in the conditions of military conflict.The study of the liquidity of the currency market through the prism of linear regression reveals the relation between the core economic indicators and the level of liquidity of the currency market during the military conflict. The model with a coefficient of determination 0,774 was found to effectively describe 77,4% of liquidity variability, underlining the significant influence of such factors as central bank policies and macroeconomic conditions. Significant coefficients for central bank interventions (1,7867), regulatory measures (59,8199), volume of international aid (-1,5684) and inflation (-99,9780) indicate their influence on the liquidity of the currency market in the conditions of military conflict. The influence of regulatory measures with a correlation of 0,59 is especially important.The article emphasises the necessity for minimising dependence on external financing and inflation control through monetary measures to ensure price stability. Further study perspectives involve consideration of the influence of digital currency of central banks on the liquidity of the currency market.

Revisiting the Pasinetti Index: Understanding Its Cyclical and Long-Term Features and Its Important Implications for Macroeconomic Policy

ABSTRACT This article explores the long-term and cyclical effects of the Pasinetti Index (PI) and their implications for income distribution and macroeconomic policy in a post-pandemic environment marked by inflationary pressures and increasingly restrictive central bank policies. It discusses the relevance of adopting a zero PI as monetary policy framework as either a short-term target or a long-term norm. The research underscores the importance of coordinating monetary and fiscal policies to achieve a balanced mix of short-term and long-term macroeconomic goals, as per the Pasinetti rule, aimed at stabilizing income distribution between rentier and non-rentier groups without compromising on a Keynesian full employment commitment. By analyzing historical data and employing a SVAR model for Canada and the United States, the study highlights the significant cyclical impact of PI fluctuations on unemployment and income distribution. The findings challenge the efficacy of rigid monetary policy rules and support a macroeconomic policy that reconciles short-term employment objectives and long-term distributional goals.

Deposit Channel of Monetary Policy in European Countries

Abstract This paper focuses on the first link of the monetary transmission mechanism – interest rate channel. It forks on two subchannels: credit vein and deposit vein. We will investigate the second one, i.e. the impact of the discount (also key, reference) rate of a central bank on the deposit policy of commercial banks. Deposit channel is a very rarely treated as a separate line of the monetary policy from the credit channel. On the basis of VAR analysis of monthly data over several-years period on the banking system of Ukraine, Poland, and Montenegro we found out a tendency of the discount rate to impact banks’ deposit rates changes with some lag of time. The tightest liaison between these indicators is observed during the periods of discount rate stability and sloping down. However, sensitivity of banks‘ deposit rates is lost when the discount rate is rapidly increased during the periods of restrictive monetary policy. It was defined that the essential reason for such picture is an extra liquidity of the banking system. On the one hand, it symbolizes the soundness of banking system, while from the other it makes more difficult for a central bank policy to absorb extra liquidity from the market to reduce pressure on prices. The paper contains some thoughts for increasing effectiveness of restrictive monetary policy in such periods.

Quantitative Easing and Climate Change: A Case Study

In the context of increasing global climate change, this article takes an in-depth look at how central banks can use quantitative easing to help address this issue. Based on three research methods: Green Bond, SDGs Bond, Carbon Trading Market and Carbon Reduction Project, this paper analyzes the pros and cons of specific measures of quantitative easing in dealing with climate change. The study found that the above three types of quantitative easing policies can effectively guide funds to green industries, promote green economy and sustainable development, and thus mitigate the economic impact of climate change. This research not only provides a new perspective for central bank policy making, but also provides investors with new opportunities for green investment. This paper suggests that the central bank should increase its support for green projects when formulating quantitative easing policies, and encourage investors to actively participate in green investment to jointly promote the response to climate change.

An unconventional FX tail risk story

We examine how the tail risk of currency returns over the past 20 years were impacted by central bank monetary and liquidity measures across the globe with an original and unique dataset that we make publicly available. Using a standard factor model, we derive theoretical measures of tail risks of currency returns which we then relate to the various policy instruments employed by central banks. We find empirical evidence for the existence of a cross-border transmission channel of central bank policy through the FX market. The tail impact is particularly sizeable for asset purchases and swap lines. The effects last for up to 1 month, and are proportionally higher for joint QE actions. This cross-border source of tail risk is largely undiversifiable, even after controlling for the U.S. dollar dominance and the effects of its own monetary policy stance.

Greening Central Bank Policies: Euro Area vs Non-Euro Area EU Member States

Abstract Climate change has become relevant for central banks worldwide, but they are adopting their instruments at different speeds. This article compares the reactions of the Eurosystem with those of the other EU central banks. Do these central banks differ in their efforts to make their own policies “greener”? The article argues that the options and constraints to react to climate change diverge between central banks.

THE RISE OF CRYPTOCURRENCIES AND THEIR POTENTIAL TO DISRUPT TRADITIONAL FINANCIAL SYSTEMS

This research investigates the impacts of cryptocurrencies on traditional financial systems and how their introduction has influenced modern financial policies. The paper employs a qualitative analysis of published research, including historical cryptocurrency data, macroeconomic policy data, and the inflationary and deflationary effects of cryptocurrencies. Additionally, it examines the impacts on central banking policies, user experiences, and overall cash flow within the economy. The findings provide a comprehensive overview and deeper understanding of how cryptocurrencies are reshaping contemporary financial systems.

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

STIMULATING THE DEVELOPMENT OF RESIDENTIAL DEVELOPMENT THROUGH MORTGAGE LENDING

The article is devoted to stimulating the development of housing construction through mortgage lending. The purpose of the article is to determine the role of mortgage lending in the development of the housing sector, in particular through its impact on supply and demand in the real estate market and pricing in this sector. In the course of the research, data analysis, correlation analysis, and methods of forecasting economic trends were used. Graphical methods were also used to provide a clear understanding of how changes in the mortgage market affect the development of the real estate sector. The results of the study show that mortgage lending is a key element in stimulating the development of the housing sector, as it not only directly facilitates access to finance for potential property buyers, but also indirectly affects the pricing and investment attractiveness of the housing sector. The paper shows that fluctuations in mortgage rates have a significant impact on the dynamics of supply and demand in the residential real estate market, as well as on price trends. In particular, rising mortgage rates tend to reduce demand for housing, as households expect better investment opportunities. There is also a strong correlation between mortgage rate increases and slower price growth. The expansion of the mortgage lending market and, consequently, a reduction in mortgage rates boosts supply in the real estate market. Nevertheless, it is found that such changes can have complex and ambiguous consequences, including the risks of market overheating and the formation of price "bubbles" that threaten the stability of the sector in the long run. In addition, the study found that mortgage lending facilitates the implementation of new construction projects and the expansion of the housing stock, which is an important factor in stimulating economic growth. At the same time, the analysis showed that the impact of mortgage rates on the real estate market depends on a wide range of factors, including the economic situation, central bank policy, consumer confidence and other macroeconomic indicators. The practical significance of the publication is to provide recommendations for the development of a balanced policy in the field of mortgage lending aimed at supporting the stable development of the housing sector and preventing potential destabilising factors in the real estate market.

The Impact of Central Bank Policy on Aspects of Bank Sharia Financial Behavior in the Money Market

Central bank policy has an important role in influencing the behavior of banks in the money market. This is important because banking movements can affect market stability and the economy as a whole. Therefore, analysis of the impact of central bank policy on bank behavior is very important to expand understanding of how monetary policy can influence the actions of banks participating in money markets. The research results show that central bank policies such as changes in interest rates, mandatory reserve policies, and market intervention have a significant impact on bank behavior. Interest rates set by the central bank can affect bank lending and investment interest, while mandatory reserve policies can affect banks' liquidity and their risk management strategies in the money market. This study also emphasizes the importance of transparency and communication from central banks in implementing policies. Clarity in policy can indirectly help in managing market expectations and help banks respond to changes in monetary policy. This research can be the basis for further research exploring how central bank policies can improve risk and liquidity management, as well as the stability of money markets and the economy. In conclusion, central bank policy has a significant impact on bank behavior in the money market, and policy communication and transparency are important factors in bank risk and liquidity management in order to maintain money market stability in the future.

Effects of the Expenditure Ceiling on public investment and the central bank policy rate: evaluation via synthetic control

Resumo Tendo vigorado entre 2017 e 2022, o Teto de Gastos marcou um importante período da política fiscal brasileira e gerou uma série de debates acerca de seus efeitos sobre variáveis macroeconômicas. Usando a metodologia do Controle Sintético e dados anuais do Banco Mundial e do FMI, este artigo avalia o seu impacto sobre a taxa básica de juros (Selic) entre 2017 e 2021 e sobre a taxa real de investimento público entre 2017 e 2019. Os resultados indicam que a implementação do Teto coincidiu com uma queda na Selic não observada no contrafactual, estando em linha com resultados anteriores relacionados às taxas de juros longas. A análise do investimento público, por sua vez, revela que não é possível isolar o efeito do Teto, haja vista a queda de investimentos governamentais durante a recessão de 2015-2016.

Today’s Finance Markets in Conditions of Poly-Crisis and Crisis of Cost of Living

The article provides characteristics, statistics and factual material on countries connected with the current global economic crisis of the cost of living. The notion of the current poly-crisis was defined as a sum total of old and new risks in their close interaction and their adverse impact on global and national economy and finance markets. The focus was made on tightening of monetary and credit policy of national central banks in 2022–2023 in view of combating inflation, which resulted in more expensive credits, higher profitability of state treasury bonds, bankruptcy of corporations and declining standard of living of people. On the background of the global poly-crisis the author assessed macro-prudential policy of the Bank of Russia and standing of its banking system, including market of preferential mortgage with state support. Within the frames of crisis-management risks of Russian insurance and re-insurance industries were shown, as well as non-credit life insurance as a today’s driver of insurance market growth. In view of import-substitution policy an important innovation of the Moscow exchange – the informational-analytical, financial and trade terminal ‘Trade Radar’ was put forward. The author showed economic essence, trends and tools of de-dollarization policy of Russia and friendly countries, including BRICS project aiming at development of common supranational payment unit.

The Implementation of Central Bank Policy during the Economic Crisis in Lebanon

During the last four years Lebanon has been facing a severe crisis that have no way out. It has challenged all the potential of the authorities dealing with financial, social and economic sector circumstances. Recently this economic crisis is still going up in higher frequency and more effectively on the Lebanese people. During this crisis central bank of Lebanon implemented its own monetary policy that is represented by expansionary monetary policy. The aim of this paper is to detect the impact of central bank implemented monetary policy during the economic crisis in Lebanon using money supply and open market operations tools in both short and long run on coincident index and consumer price index. In this consideration we perform monthly data covering the period January 2017 to June 2022 by applying VAR model. The empirical results shows that money supply and open market operation have no impact on coincident index and consumer price index in the long run, in addition they do not cause them in the short run. However the impulse response function show some reactions of coincident index and consumer price index to shocks in money supply and open market operations.

A Pandemic's grip: Volatility spillovers in Asia-Pacific equity markets during the onset of Covid-19

The emergence of Covid-19 in late 2019 rapidly shattered the Asia-Pacific region (APR), a bastion of economic dynamism, and it became the epicenter of the global health crisis. This unprecedented pandemic not only triggered a public health catastrophe but also unleashed a financial storm, exposing vulnerability within the region's interconnected economies. This study identifies the factors driving volatility spillovers within Asian-Pacific financial markets during the initial wave of the Covid-19 pandemic (January 2020–February 2021). We analyze the interplay of pandemic transmission dynamics, government interventions, central bank policies, and socioeconomic variables. Our findings reveal a robust and persistent association between the rising number of Covid-19 cases per million and volatility spillovers. We introduce three novel determinants—the number of intensive care unit beds, population density, and the proportion of the elderly population—which significantly impact volatility transmission in response to new cases. Stringent government measures, such as travel bans and lockdowns, mitigate volatility spillovers. Conversely, central bank policies increase volatility spillovers. These insights contribute to a deeper understanding of financial market dynamics in the context of global health emergencies. This knowledge equips policy makers in the APR with valuable tools for navigating future crises.

Monetary policy and wealth inequality

AbstractThis thesis examines how monetary policy shocks affect wealth inequality in Australia. I analyse how a monetary policy shock, through asset price responses, affects household balance sheets and wealth inequality measures. I find that contractionary monetary policy reduces the wealth gap, but also disproportionately increases the wealth share of the most affluent Australians. This is driven largely by the response of house prices to an increase in the central bank's policy rate. I use a novel methodology to overcome the data limitations that usually impede studies of wealth inequality, and I produce results with implications for central bankers and policymakers. My results are robust to numerous lag specifications, modelling techniques and identification strategies.

Central bank policies and green bond issuance on a global scale

We employ recently released IMF data to examine the impact of central bank supervision policies on green bond issuance in sixty-six countries during 1992–2021. We introduce three novel metrics to assess central banks' supervisory authority: the breadth of their supervision mandates, the intensity of monitoring and enforcement, and the power of utilization of systemic risk tools. Countries with central banks possessing broader supervisory mandates and actively employing systemic risk tools are broadly associated with higher overall values of green bond issuance. Conversely, higher monitoring and enforcement intensity is associated with lower issuance values. These effects are pronounced in the realm of private green bond issuance and less prominent in government bond issuance where the government has a strong role. While the efficient functioning of financial institutions and the quality of ratings play crucial roles, inflation does not seem to have a significant impact on green bond issuance. Our results remain robust through sensitivity tests and endogeneity analyses. Developed countries primarily rely on central bank monitoring and enforcement intensity as the dominant policy variable, whereas developing countries lean more towards the central bank mandate as the influential policy variable.

Assessing the predictability of the Bank of Russia decisions on the key rate and informational advantage in its forecasting

The communication policy of central banks plays a significant role in setting the expectations of economic agents. If key rate decisions are inconsistent with market expectations, managing expectations and anchoring inflation expectations may be difficult. We assess the predictability of the Bank of Russia’s key rate decisions over the 2021—2023 period in two ways: using media surveys of analysts and shifts in the Russian government bond index and the daily volatility of its yield. The results show a significant impact of unexpected key rate decisions on Russian government bond prices and daily volatility. Then, using statistical metrics computed from macroeconomic survey data and another linear and piecewise linear model, we find the informational advantage of the Bank of Russia in predicting the key rate. The decisions unexpected for the market are explained by the information advantage of the Bank of Russia, as well as the realization of geopolitical and inflation risks in the period under study. Thus, we conclude that there is a need to improve the quality of communication regarding future decisions. As the communication policy develops, the predictability of the Bank of Russia’s decisions on the key rate will increase. In turn, economic agents and market participants will adapt to the expected decisions in advance, which will accelerate the achievement of the inflation target and the adjustment of inflation expectations.

Macroeconomics Determinants of Interest Rate Spreads Among Commercial Banks in Kenya

The determination of interest rate spread in commercial banks is influenced by various macroeconomic variables, market microstructure features and the policy environment. However, studies on factors that contribute to the interest rate spreads among commercial banks in Kenya have produced mixed results that calls for further research. This study aimed to assess the determinants of interest rate spread in commercial banks in Kenya. Specifically, the study sought to establish the effect of inflation rate, domestic borrowing, credit risk and exchange rate risk on the interest rate spreads among commercial banks in Kenya. The study was anchored on fisher hypothesis, classical theory of interest and loanable fund theories. Explanatory research design was adopted to establish the causal relationship between the study’s variables. Secondary data of the study for the period between 1970 -2022 was extracted from annual financial statements of commercial banks targeted by the study and Central bank of Kenya annual reports. Data was analyzed through descriptive and inferential statistics. The study adopted the regression model to obtain results. Based on the regression results, the study found that domestic borrowing had a significant positive effect on interest rate spreads among commercial banks in Kenya. Additionally, the study found that inflation rate, credit risk and exchange rate risk had a significant positive effect on interest rate spreads among commercial banks in Kenya. The study concluded that macroeconomic variables such as inflation rate, domestic borrowing, credit risk and exchange rate risks are key determinants of interest rate spread among commercial banks in Kenya. The study made the following recommendations to regulators and policy makers. First, ensure that the central bank's monetary policy actions effectively influence interest rates throughout the banking system and also Implement mechanisms to improve the transmission of changes in the central bank's policy rates to commercial banks' lending and deposit rates. Secondly, establish a framework for monitoring key macroeconomic indicators such as inflation, economic growth, exchange rates, and fiscal policies to identify potential factors impacting interest rate spreads and use the monitoring results to formulate timely and appropriate policy responses. The study recommends that future studies should conduct studies across different countries which could provide a more comprehensive understanding of the subject matter.

PRECIOUS METALS MARKET FORECASTING IN THE CURRENT ENVIRONMENT

The article analyzes trends in the precious metals market. The general characteristics and assessment of the most popular precious metals are given. The key factors influencing the supply and demand of precious metals are analyzed. Precious metals market forecasts have been developed. An analysis of the state of the world gold market in recent years has been carried out. Using the method of comparative analysis, modern trends in the supply and demand of this precious metal were revealed. The dynamics and structure of world gold reserves are considered. The world's precious metal reserves in different countries were also studied. The potential gold reserves in Ukraine are estimated. The production of precious metals in the world was studied. The rating of countries producing precious metals has been compiled. The leaders in this field have been identified based on the criteria of production capacities and growth rates of precious metals extraction. The structure of consumption of precious metals in the world is analyzed. The factors that lead to an increase in the rate of consumption of precious metals in modern conditions are considered. In particular, an increase in the current rate of commissioning of new solar energy capacities and an increase in the use of electric transport have been identified, which has significantly increased the demand for precious metals in the world. The impact on price dynamics of geopolitical and other economic factors, such as changes in trade relations between countries, currency fluctuations, market crises, changes in the monetary policy of central banks in many countries, and, above all, the increase in interest rates by the US Federal Reserve, was also studied. Considering these and other influencing factors, forecasts of the price dynamics of the precious metals market for 2024 and subsequent years were developed using a graphical method.

MONETARY POLICY AND WEALTH INEQUALITY: EVIDENCE FROM CHINA

Given the scarce empirical evidence on the distributional consequence of monetary policy, this paper draws on detailed data at microlevel to investigate the impact of China’s monetary policy on households’ wealth and wealth distribution using information from the China Family Panel Studies (CFPS) during 2012–2018. Our results confirm the following: (1) Household wealth is affected more by real interest rate adjustments than unexpected inflation and there are heterogeneities across the wealth level; (2) The impacts of monetary policy loosening and tightening cycles on household wealth are not neutral. During 2012–2018, while monetary easing had an equalizing effect, the unexpected inflation channel had a dis-equalizing effect; (3) Financial development amplifies the wealth effect of monetary policy adjustments. Our findings have important implications on the conduct of central bank policies.