Portfolio Channel Research Articles

A Housing Portfolio Channel of QE Transmission

A Housing Portfolio Channel of QE Transmission

Do Robots Increase Wealth Dispersion?

Abstract We document significant negative effects of exposure to increased automation at work on household wealth accumulation. Beyond the income and savings channels, we uncover a novel mechanism contributing to the negative wealth effects of automation that arises through the endogenous optimal portfolio decisions of households. We show that households rebalance their financial wealth away from the stock market in response to increased human capital risk induced by pervasive automation, thereby attaining lower wealth levels and relative positions in the wealth distribution. Our evidence suggests that the portfolio channel amplifies the inequality-enhancing effects of increased automation. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

환율 변동성 요인 분석 및 환율 변동성이 실물경제에 미치는 영향

This study empirically analyzes factors that can affect the volatility of the domestic won/dollar exchange rate, which advocates a small open economy, focusing on the United States, a representative key currency country. In addition, the effect of exchange rate volatility on the domestic real economy was analyzed. First, the EGARCH model is estimated in order to extract won/dollar exchange rate volatility. The results show that there is a volatility clustering phenomenon in the won/dollar exchange rate volatility. Next, factors of exchange rate volatility are estimated through the regression analysis. The estimated results indicate that variables of the US currency amount and Korea-US interest rate spread show significant amounts of coefficients, and each variable increase causes the increase of won/dollar exchange rate volatility. This explains that the expansionary monetary policy of the US implemented for domestic business recovery raises won/dollar exchange rate volatility through direct currency channel and portfolio channel. On the other hand, the growth rate of the US shows significant negative coefficient, and the increase of relevant variables leads to the reduction of won/dollar exchange rate volatility. In the results of estimating the SVAR model in order to check the effects of exchange rate volatility on real economy of Korea, the shock of exchange rate volatility increase reduces trades between Korea and the US while limiting the growth rate of Korea. Through the above analysis results, it is expected that unexpected monetary policy(austerity monetary policy) of major key currency countries including the US might expand the won/dollar exchange rate volatility, which could function as an element to restrict domestic real economy.

Exploring the Dynamic Shock of Unconventional Monetary Policy Channels on Income Inequality: A Panel VAR Approach

In response to the “Great Recession and Global Financial Crisis”, central banks had to deploy unconventional monetary policies (UMP) in order to fight the severe impact of the crisis. Therefore, the purpose of this study is to examine the dynamic shock of unconventional monetary policies through earning heterogeneity, income composition, and portfolio channels on income inequality in emerging economies covering the period 2000–2019, using the panel vector autoregressive (PVAR) model. A PVAR model was designed for this study because of its ability to address the dynamics of numerous entities considered in parallel. The findings suggest that the UMPs used by these countries’ central banks may have increased income inequality through all of the channels investigated in this study, as a shock to unconventional monetary policy results in a positive response in income inequality. Even when pre-tax income, held by the top 10%, is adopted to measure income inequality, the study yields similar results. It is evident that a central bank’s objective is and should be to fulfil its mandate of achieving maximum employment and price stability, thus bringing wide economic benefits. Thus, some forms of policies are more appropriate for addressing concerns about inequality (income policy or fiscal policy) than others. However, the current study alerts the central bank to the fact that monetary policies may have a wounding impact on income inequality. Therefore, the central banks should consider the cost of monetary policies on income inequality when drafting or implementing these kinds of policies.

Crude oil price changes and exchange rate: Case of oil exporting countries in CEMAC

Purpose: Policy makers, academics and journalists have frequently discussed the link between oil prices and exchange rate in recent years. After the 2014 World’s biggest oil price drop that plunge CEMAC oil exporting countries into an external liquidity strain, due to the pressure raised on Euro to which CFA franc is pegged, this paper revisits the dependence between crude oil price changes and exchange rate.
 Methodology: Crude oil price is the main independent variable, though other independent variables have been considered. The change in crude oil price is captured through differentiation of average yearly crude oil prices. The real effective exchange rate (RER) is the dependent variable, captured with the consumer’s price index (CPI), which describes the strength of a currency relative to a basket of other currencies. The data used in this study were extracted from Word Bank Development Indicators (WBDI, 2020) and World Bank Commodity Price Data. The study covers the period 1990-2018. The main channels of transmission used in this paper are the terms of trade channel, the wealth or portfolio channel and the anticipation or expectation channel. A panel autoregressive distributive lag (ARDL) model was used.
 Findings: The result shows that there is a short run positive and insignificant effect of oil price changes on exchange rate of CEMAC oil producing countries. In the long-run, there is rather a negative and significant impact of oil price changes on exchange rate. More concretely, a unit increase in oil prices depreciates exchange rate of these countries by 0.4340 units and this is significant at 1%. The short run Cross-country analysis shows that the effect is negatively significant for Cameroon and Chad; positive and significant for Democratic Republic of Congo and Equatorial Guinea; but positive and not significant for Gabon. These results are likely linked to structural differences between countries as the dependence on oil revenue and the security situation are concerned.
 Recommendations: Given this negative long run damage of oil prices on exchange rate of CEMAC oil producing countries, it is highly advisable these countries increase direct investments in key economic non-oil sectors in order to reduce dependence. On the other hand, considering the unidirectional causality from exchange rate to oil prices, a policy of exchange rate anchor by BEAC is suitable in order to absorb the shock of oil price changes on exchange rate and eventually inflation in the these economies.

Transmission Channel and Effect Analysis of Denmark's Nominal Negative Interest Rate Policy

Denmark is considered to be the most successful example of implementing a nominal negative interest rate policy(NIRP). This paper examines the transmission and effects of the NIRP in Denmark through a TVP-SV-VAR model. The results show that the exchange rate channel of the NIRP in Denmark is effective while the NIRP increases exports and effectively promotes economic growth through Danish krone’s depreciation. And the interest rate channel, the wealth channel and the asset portfolio channel plays a limited role. Denmark's NIRP is effective as it aims to ease the pressure of exchange rate appreciation.

The Dynamic Impact of FX Interventions on Financial Markets

Abstract Evidence on the effectiveness of foreign exchange (FX) interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.

Real Effects of the ECB's Quantitative Easing: A Housing Portfolio Channel

We propose a new housing portfolio channel through which QE affects output. In response to QE, intermediaries rebalance portfolios from bonds to houses, lowering the return to saving and stimulating consumption and output. We study this channel empirically in a German housing boom without credit boom. Identification exploits regional variation in land scarcity to measure exposure. Our channel accounts for 60-80% of the total QE impact, with the term spread, the credit, collateral and wealth channels accounting for the remainder. To illustrate our channel, we also set up a simple portfolio model with preferred habitat investing in local housing markets.

The effects of monetary policy on income and wealth inequality in the U.S. Exploring different channels

We assess the effects of monetary policy shocks on income and wealth inequality through direct inequality measures and by analyzing several transmission channels explored in recent literature. Furthermore, we analyze two additional channels: the Housing and the Fiscal channels. The methodology adopted is a Bayesian proxy SVAR using a high-frequency identification based on the external instruments approach. Our own policy shocks are constructed for this purpose. The results show that an expansionary monetary policy shock does not have a significant effect on income inequality due to the existence of opposite channels, whereas it increases wealth inequality mainly through the portfolio channel.

The Dynamic Impact of FX Interventions on Financial Markets

Evidence on the effectiveness of FX interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally, we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.

Estimating the contagion effect through the portfolio channel using a network approach

This work studies contagion risk through the portfolio investment channel using network analysis and simulation on bilateral cross-country data. The importance of the portfolio channel in the transmission of financial shocks reflects the high interconnectedness of the global financial system, which diminished in the aftermath of the global financial crisis but has resumed in recent years. The network representing cross-country portfolio investments turns out to be highly concentrated around the main financial centers, which act as global hubs connecting with nodes that are not linked directly. Using a network simulation model based on the assumption that international investors rebalance their portfolios after an idiosyncratic shock, reducing investments in countries to which they are overexposed, we find that contagion effects may be significant even when the shock originates in a peripheral country. In addition, the model suggests contagion risk has risen since the global financial crisis, owing to the greater financial integration of emerging economies.

Effects of unconventional monetary policy on income and wealth distribution: Evidence from United States and Eurozone

As an answer to the ?Great Recession? and Zero Lower Bound problem, main central banks had to use unconventional monetary policy (UMP). This research focuses on the distributive effects of these measures on household income and household wealth in the United States of America (USA) and the Eurozone. For this purpose, this paper presents four models that were constructed using the Structural Vector Autoregressive methodology (SVAR). The results suggest that the UMPs applied by the Federal Reserve (FED) in the USA could increase wealth and income inequality through the portfolio channel. However, the same results were not observed in the Eurozone.

Safety of coffee production as the main competitive advantage of the company in the market

The relevance of implementing the principles of product safety management caused by the necessity to implement this standard by the Ukrainian enterprises while forming the image of a safe food producer, thereby expressing a serious attitude to the opinion and health of consumers. An equally important effect of the implementation of this standard is the investment attractiveness of the company and the ability to enter the foreign market. Thus, Ukrainian products will be in demand by consumers in the foreign market due to decent quality and affordable prices. Analysis of the prospects for the implementation of the HACCP standard will allow the company to interest the consumer in the purchase of coffee products, reduce the cost of its production, expand its product portfolio and increase distribution channels. The article aims to study the benefits for the company from the application of HACCP, to characterize the process of its implementation and to provide a typical example of real deviations in the designed enterprise models. Methodology: during the study, a qualitative analysis of the existing DSTU ISO 22000: 2007 standard was carried out, as well as the analysis of the existing deviations of coffee production. The scientific significance of the study lies in the fact that, based on the conducted research results, it is possible to develop typical processes for the accelerated implementation of HACCP standards, which in turn will accelerate the intensity of its high-quality implementation. The value of the research is that, based on the implementation of standards for the management of safe coffee products, the consumer receives a quality product, while the state obtains a certified manufacturer and potential exporter. JEL Classification: L15, K13, J28.

Cross-Border Bank Flows and Monetary Policy

We analyze the impact of monetary policy on bilateral cross-border bank flows using the BIS Locational Banking Statistics between 1995 and 2014. We find that monetary policy in the source countries is an important determinant of cross-border bank flows. In addition, we find evidence in favor of a cross-border bank portfolio channel. As relatively tighter monetary conditions in source countries erode the net worth and collateral values of domestic borrowers, banks reallocate their claims toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for banks in source countries with weaker financial sectors, which are likely to be more risk averse. Lastly, the reallocation is directed toward borrowers in safer countries, such as advanced economies or economies with an investment grade sovereign rating. By highlighting the effect of domestic monetary policy on foreign credit, this study enhances our understanding of the monetary policy transmission mechanism through global banks.

Spillovers of Monetary Policy Across Borders: International Lending of Dutch Banks, Insurers and Pension Funds

We analyze the relationship between ECB monetary policy and international lending by Dutch financial institutions. Our results suggest that banks hardly change their foreign lending in response to policy changes. We find some evidence in support of the portfolio channel (in response to a contractionary shock, better capitalized banks increase their foreign lending less than banks with lower capital) and the bank lending channel (larger banks lend more after a contractionary shock than small banks). Insurers and pension funds do not respond to ECB monetary policy, but increase lending when banks in the host country are constrained by prudential regulation.

International monetary policy transmission through banks in small open economies

This paper studies the international transmission of monetary policy through banks in small open economies using the examples of Switzerland and Canada. We assess the inward transmission of foreign monetary policy for Switzerland and the outward transmission of domestic monetary policy for Canada. In both country cases, we focus on the international bank lending and the international portfolio channel, which make opposing predictions about how monetary policy transmits internationally through banks. Our results on the inward transmission of foreign monetary policy through banks in Switzerland are consistent with a role for the international portfolio channel, but we find no evidence for the traditional international bank lending channel. The results on the outward transmission of domestic monetary policy in Canada suggest that foreign lending by Canadian banks is affected through both channels, which work as predicted and largely balance each other.

The international transmission of monetary policy through financial centres: Evidence from the United Kingdom and Hong Kong

This paper explores the cross-border transmission of monetary policy by comparing and contrasting the results for two major international financial centres: Hong Kong and the United Kingdom. We examine the effect of monetary policy in the USA, euro area and Japan, on banks’ domestic lending behaviour. Using individual bank-level data we find that financial connections – in the form of lending to and borrowing from the country which changes monetary policy - play an important role in the transmission of foreign monetary policy. We are able to establish evidence for both a bank funding and bank portfolio channel of monetary policy, for both Hong Kong and the UK. These results contrast to the largely inconclusive results from previous studies, whose aggregate nature may have masked offsetting individual bank effects.

International spillovers of monetary policy: Lessons from Chile, Korea, and Poland

In this paper, we assess evidence on international monetary policy spillovers to domestic bank lending in Chile, Korea, and Poland, using confidential bank-level data and different measures of monetary policy shocks in relevant currency areas. These three emerging market economies are small and open, their banking systems do not have significant presence overseas, and they can be considered as price takers in the world economy. Such features allow for better identification of binding financial constraints and foreign monetary policy shocks. We find that the monetary policy shocks spill over into domestic bank lending, modifying the degree to which financial frictions tighten or relax, and this evidence is consistent with international bank lending and portfolio channels.

The international transmission of monetary policy

This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the United States, euro area, Japan, and United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private sector do occur, especially for US policies, and bank-specific heterogeneity influences the magnitudes of transmission. The effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission. They also show that the frictions that banks face matter; in particular, foreign currency funding and hedging considerations can be a key source of heterogeneity. The forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries. International spillovers into lending can be large for some banks, even while the average international spillovers of policies into nonbank lending generally are not large.

Do Robots Increase Wealth Dispersion?

We demonstrate that increased automation has a significant negative impact on distribution of wealth. Households who are more exposed to industrial robots at work accumulate less wealth and experience greater downward mobility in the wealth distribution. The negative wealth effects of robots are not merely a consequence of differences in earned incomes or differential saving rates. We provide evidence that the adverse effects of rapid robotization on individual workers' human capital, and thereby, on their financial risk taking and investment behavior represent an additional important mechanism. Overall, the portfolio channel amplifies the inequality-enhancing effects of increased automation.