Asset Purchases Research Articles

Challenges For ECB Communication Policies

<p>This paper discusses two challenges for the European Central Bank (ECB) communication policies, namely how to communicate with financial markets during and after the ‘normalisation’ of its monetary policy, and how to communicate with the general public in order to increase trust in the central bank. </p><p>Traditionally, central bank communication was directed towards financial market participants. By communicating its future policy intentions (forward guidance), a central bank can tighten the gears between the short-term policy rate that it controls and the interest rates that influence economic behavior. We discuss how effective the ECB’s forward guidance has been, also addressing whether its forward guidance constrained the central bank in deciding to terminate asset purchases and raise policy rates after inflation had increased above target. We conclude that its current meeting-by-meeting and data-driven approach might be a suitable approach to communicate with financial markets provided ECB officials stop providing (conflicting) hints about future interest rate decisions.</p><p>To ensure a modicum of democratic accountability, central banks must also communicate with the general public. No doubt, the biggest challenge in communicating with the broad public is that they are not really interested. This makes it very hard to use communication policies to increase trust in the ECB. Trust is important as research suggests that inflation expectations of individuals who trust central banks tend to be closer to the central bank’s inflation target. Probably the best way to regain trust is to bring inflation back to target. </p>

Personal Budget – Imonext Real Estate Case

To carry out this work, we used the organizational context of a fictitious company that provides services in the real estate sector, more specifically, in the purchase and sale of real estate assets. In short, this work provides an in-depth analysis of the intersection between Financial Management and Human Resources, highlighting the importance of a strategic and integrated approach to ensure organizational success.

Flexible Asset Purchases and Repo Market Functioning

Flexible Asset Purchases and Repo Market Functioning

Expansionary Federal Monetary Policy and U.S. Banks’ Risk Profiles During the COVID-19 Pandemic-Induced Economic Recession

This study focuses on the pandemic phase when the U.S. economy dealt with significant economic recessionary pressures due to widespread, prolonged social mobility restraints. The Federal Open Market Committee (FOMC) promptly pursued expansionary policies, such as lowering the federal funds rate to almost zero until February 2022. This study employs a Dynamic Panel Data Generalised Moment Method Model (DPD-GMM) to analyse the impact of the COVID-19 pandemic’s economic shocks and FOMC’s expansionary policy on U.S. banks’ loan portfolio and asset complement risk profiles. Our analysis extends from two pre-pandemic years through the pandemic recession and recovery periods (until early 2022) prior to the FOMC’s eventual aggressive rate hiking policies intended to attenuate consequent inflationary conditions. Our findings clarify that banks’ risk exposure can be driven by both uncontrolled and discretionary portfolio decisions. Economic shocks beyond the banks’ control (such as the pandemic) could suddenly discredit historical lending decisions as economic slowdowns indiscriminately affect even clients previously assessed as creditworthy. Thus, banks experience more pronounced loan portfolio risk due to rising non-performing loan (NPL) balances. Meanwhile, the FOMC’s expansionist low interest-rate policy provides relief for banks who use their discretion in resolving their compounding liquidity concerns. These decisions, however, increase their risk asset holdings characterised by greater vulnerability to economic fluctuations. Our study’s implications call for more cautious management of banks’ risk profiles under difficult economic periods through prudent asset purchase decisions, greater loan diversification strategies, and more equitable financial market access for smaller and specialised (such as agricultural) banks.

The End Justifies the Means? The Impact of the ECB’s Unconventional Monetary Policy on Citizens’ Trust

Since 2010, the European Central Bank (ECB) has established a range of unconventional monetary policies in the context of several crises, including cheap and long-term refinancing operations and several forms of asset purchases. This ECB action has been legally and politically challenged, raising the question as to how the public has perceived the ECB’s mandate widening. This article assesses the legitimacy of the ECB’s unconventional monetary policy through the lens of public trust using Eurobarometer data from 1999 to 2023. This approach follows the theoretical argument that the legitimacy of non-elected independent public institutions derives from the citizens’ trust in the fulfilment of the institutions’ tasks. Through panel regression analysis, this article first finds that trust in the ECB is commonly pooled with trust in other EU institutions, which makes a singular assessment of public support of the ECB and its policies difficult. Second, macroeconomic factors, which are partially influenced by ECB policies, but which are mostly dependent on national decision-making, are the key factors influencing citizens’ trust in EU institutions, including the ECB. Thus, citizens’ trust in the ECB or the lack thereof is not determined by the ECB’s use of contested unconventional monetary policy, but rather by the macroeconomic performance of their respective national economy.

Understanding the use of unconventional monetary policy for portfolio decarbonisation in Europe

This study examines the European Central Bank's (ECB) use of unconventional monetary policy to decarbonise its balance sheet, focusing specifically on the inherent trade-offs between monetary stability and environmental sustainability. We investigate how the ECB's green asset purchases, as part of its Corporate Sector Purchase Programme (CSPP), affect the liquidity of its portfolio compared to similar assets not held by the ECB. While these assets align with green objectives, they exhibit significantly lower liquidity than their non-green counterparts. This discrepancy highlights a fundamental tension within the ECB's policy framework: the commitment to environmental sustainability may undermine liquidity and, by extension, the overall effectiveness of monetary policy. Our findings suggest that the ECB's strategy to integrate environmental considerations into its operations, though successful in supporting greener initiatives, poses challenges for maintaining strong liquidity levels. The study underscores the need for innovative financial instruments and strategies to reconcile the dual objectives of promoting environmental sustainability and ensuring monetary stability.

Online Appendix to Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Online Appendix to Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Monetary Policy Interactions: The Policy Rate, Asset Purchases and Optimal Policy with an Interest Rate Peg

Retail CBDC: Implications for Banking and Financial Stability

This article reviews the literature examining how the introduction of a retail central bank digital currency (CBDC) would affect a modern economy, focusing on the implications for the banking sector and for financial stability. A CBDC can improve welfare by reducing financial frictions, countering market power in deposit markets, encouraging financial inclusion, and enhancing the payment system. However, a CBDC also entails noteworthy risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. The recycling of the new CBDC liability through asset purchases or lending by the central bank plays an important role in determining the economic consequences of the introduction of a CBDC, raising fundamental questions about the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration.

Corporate finance, collateralized borrowing, and monetary policy

We construct a monetary model in which entrepreneurs facing uncertainty in input costs and returns of projects may finance investment internally and with bank credit. Entrepreneurs using money as a down payment and bonds as collateral can reduce the default probability. Working through these key channels, lower nominal policy rates and open market sales can reduce the real lending rate. The central bank’s private asset purchases improve availability of credit and compress risk spreads. Our model identifies the risk-reducing channel of private asset purchases—the policy functions as if the government had supplied more bonds, and the increased collateralizable bonds are allocated more to corporate borrowings with a higher lending risk. Risk-retention requirements associated with asset purchases are essential to welfare. As uncertainty with respect to input costs and investment returns intensifies, the central bank should lower the optimal risk-retention rate to encourage lending and reduce business failures.

PENGARUH PENDAPATAN DAN PEMBELIAN ASSET TERHADAP PELAPORAN PAJAK ORANG PRIBADI BERBASIS SISTEM KOMPARASI PADA MITRA KERJA PT ABC

The purpose of this study is to determine the influence of income and asset purchases on individual tax reporting using a comparative system carried out on the scope of PT ABC's partners. This study uses quantitative descriptive methods in the form of observations, interviews and case studies on tax reporting documentation. Based on the results of observations and interviews, many respondents do not know the influence of income and asset purchases on personal tax reporting, so many of the respondents are unable to explain questions from the tax office regarding income that is not propotional to asset purchases. The results of the study show that the comparative system implemented by PT ABC in handling personal tax reporting is very effective and able to minimize these problems.

What drives user interest and purchase of virtual 3D assets? An empirical investigation of 3D model attributes and pricing dynamics

Virtual 3D assets, i.e., 3D models that form the basis of virtual environments, products, and goods, are essential for the creation of a future metaverse. However, we have limited knowledge about the market dynamics in which virtual 3D assets are traded and the indicators that influence their value and pricing − and thus the purchasing mechanisms. The present study draws on multi-attribute utility and value- and competition-informed pricing theory to determine what drives the purchase of virtual 3D assets using secondary data from the marketplace Sketchfab. The empirical analysis indicates that the sellers’ value perception of virtual 3D assets contradicts the users’ interest and that organizational sellers outperform individual sellers by relying to a higher degree on competition- and value-informed pricing. Based on our findings, we identify implications for both organizational and individual sellers to refine their pricing strategies in accordance with the unique dynamics of 3D virtual asset marketplaces.

Sowing the Seeds of Financial Crises: Endogenous Asset Creation and Adverse Selection

Abstract What sows the seeds of financial crises, and what policies can help avoid them? I model the interaction between the ex-ante production of assets and ex-post adverse selection in financial markets. Positive shocks that increase market prices exacerbate the production of low-quality assets and can increase the likelihood of a financial market collapse. The interest rate and the liquidity premium are endogenous and depend on the functioning of financial markets as well as the total supply of assets (private and public). Optimal policy balances the economy's liquidity needs ex-post with the production incentives ex-ante, and it can be implemented with three instruments: government bonds, asset purchase programs, and transaction taxes. Public liquidity improves incentives but implies a higher deadweight loss than private market interventions. Optimal policy does not rule out private market collapses but mitigates the fluctuations in total liquidity.

Stock market responses to unconventional monetary policy shocks

We assess the impact of forward guidance and large-scale asset purchases (LSAPs) on stock market returns, finding that LSAP shocks during unconventional periods affect stock returns in a manner similar to federal funds rate (FFR) shocks during conventional periods.

Banking Crises Under a Central Bank Digital Currency (CBDC)

Abstract One of the main concerns associated with central bank digital currencies (CBDC) is the disintermediating effect on the banking sector in general, and the risk of bank runs in times of crisis in particular. This paper examines the implications of an interest-bearing CBDC on banking crises in a dynamic bank run model with a financial accelerator. The analysis distinguishes between bank failures due to illiquidity and due to insolvency. In a numerical exercise, CBDC leads to a reduction in the net worth of banks in normal times but mitigates the risk of a bank run in times of crisis. The financial stability implications also depend on how CBDC is accounted for on the asset side of the central bank balance sheet: if CBDC issuance is complemented by asset purchases, it delays the onset of both types of bank failures to larger shocks. In contrast, if CBDC issuance is complemented by loans to banks, it substantially impedes failures due to illiquidity, but only marginally affects bank failures due to insolvency.

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.

Liquidity in the German corporate bond market: Has the CSPP made a difference?

The Eurosystem purchased €178 billion of corporate bonds between June 2016 and December 2018 under the Corporate Sector Purchase Programme (CSPP). Did these purchases lead to a deterioration of liquidity conditions in the corporate bond market, thus raising concerns about unintended consequences of large-scale asset purchases? To answer this question, we combine the Bundesbank's detailed CSPP purchase records with a range of liquidity indicators. We find that while the flow of purchases initially supported secondary market liquidity by providing a predictable source of demand, liquidity conditions deteriorated in the long-run as the Bundesbank reduced the stock of corporate bonds available for trading in the secondary market.

Do disinflation policies ravage central bank finances?

Summary Advanced-economy central banks are currently experiencing losses. To examine how rate-tightening cycles affect central bank finances, we study the financial statements of ten advanced-economy central banks during the 1970s and 1980s, the most notable and comparable policy environment to the present. We find that central bank profits actually increased in response to the anti-inflationary measures of the 1980s. We thus discuss how central bank profits depend on their policy instruments as well as their balance-sheet position when rate tightening begins, rather than on the tightening per se. Unlike today, central banks in the 1980s avoided losses because they did not remunerate bank reserves and their balance sheets did not carry the legacy of a decade of large asset purchases at low interest rates and long maturity. Our counterfactuals show that only a combination of these factors could have triggered losses in the 1980s: none of them is sufficient on its own. When losses emerged in the late 1970s, before the Volcker shock, they were due to foreign exchange reserves depreciating. In these instances, when central banks carried them forward and did not rely on transfers from the government, there was no loss of central bank independence or their ability to fight inflation.

Recent Developments in Indian Central Banking: Flying through Turbulence but Aided by Some Tailwinds

This paper, an extension of our earlier work, presents a narrative of select broad aspects of Indian central banking during the pandemic and thereafter. As elsewhere, Indian monetary policy during the pandemic was characterized by substantial monetary expansion both in terms of rate cuts as well as asset purchase programs. The inflation targeting regime of Indian monetary policy was put to severe stress following the spurt in inflation after the pandemic. Besides, there have been two positive developments in Indian central banking. First, there has been significant improvement in the balance sheets of the Indian banking sector, following the institution of an effective corporate bankruptcy regime, write‐offs of earlier stressed assets, and recapitalization of public sector banks by the government. Second, India has made substantial progress in terms of adopting various facets of its digital financial infrastructure, where public initiatives were accompanied by private sector innovations. The digitalization of payments increased in both quantum and value and has touched the lives of the public through the ease of making daily payments, including the smallest of transactions.

Dynamic Stochastic General Equilibrium Model for the Analysis of Large-Scale Asset Purchases: Lessons Learned for Cambodia

Dynamic Stochastic General Equilibrium Model for the Analysis of Large-Scale Asset Purchases: Lessons Learned for Cambodia