Asset Purchases Research Articles

The impact of forward guidance and large-scale asset purchase programs on commodity markets

Abstract This paper investigates how different commodity prices are affected by unconventional monetary policies (UMP) implemented by the Federal Reserve of the United States as a response to the Global Financial Crisis. We analyze impulse responses using local projections and identify UMP shocks through high-frequency identification strategy. We show that forward guidance (FG) and large-scale asset purchase (LSAP) shocks lead to distinct responses when analyzing commodity prices. We find that asset-like commodities, such as gold and silver, respond to these UMP shocks most aggressively. While an easing FG shock leads to increases in their prices, an easing LSAP shock has the opposite effect. This differential response suggests that these asset-like commodities are being used as inflation and exchange rate hedges. In contrast, production-like and agricultural commodities respond to UMP shocks in the same way as conventional monetary policy shocks. Consistent with previous literature, we find that easing LSAP shocks, to some extent, signal a negative economic outlook. Policymakers can exploit the responses from the various commodity classes examined in this paper when evaluating the effectiveness of monetary policy in different sectors of the economy.

Effects of State‐Dependent Forward Guidance, Large‐Scale Asset Purchases, and Fiscal Stimulus in a Low‐Interest‐Rate Environment

AbstractWe study the incidence and severity of periods with a binding effective lower bound on nominal interest rates and the efficacy of three types of state‐dependent policies—forward guidance about the path of future interest rates, large‐scale asset purchases, and spending‐based fiscal stimulus—in mitigating the detrimental consequences of the lower bound for macro‐economic stability. Based on the ECB's New Area‐Wide Model of the euro area, our findings suggest that, if left unaddressed, the lower bound can cause substantial macro‐economic distortions. In the near term, forward guidance, if fully credible, is most powerful and can largely undo these distortions. A combination of imperfectly credible forward guidance, asset purchases, and fiscal stimulus is almost equally effective, especially when asset purchases enhance the credibility of the forward‐guidance policy via a signaling effect. In the long run, with an equilibrium real rate as low as zero, a combination of all three policies is needed to materially reduce the distortions.

A Portfolio Model of Quantitative Easing

This paper presents a portfolio model of asset price effects arising from central bank large-scale asset purchases, or quantitative easing (QE). Two financial frictions — segmentation of the market for central bank reserves and imperfect asset substitutability — give rise to two distinct portfolio effects. One is well known and derives from the reduced supply of the purchased assets. The other is new, runs through banks’ portfolio responses to reserves expansions, and is independent of the types of assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.

EFEKTIVITAS PEMBIAYAAN SYARIAH DALAM MENINGKATKAN KINERJA KEUANGAN UMKM DI DESA PEMATANG SERAI KECAMATAN TANJUNG PURA KABUPATEN LANGKAT

Sharia-based BUMDes have a significant contribution in supporting the development of Micro, Small and Medium Enterprises (MSMEs). BUMDes savings and loans provide capital to MSME entrepreneurs to be used in running MSME businesses, and MSME actors as managers of this capital to improve MSME businesses. Based on this phenomenon, this research is intended to see the effectiveness of Islamic financing in improving the financial performance of SMEs in Pematang Serai Village, Tanjung Pura District, Langkat Regency. This type of research is a quantitative descriptive approach, with the data analysis technique used is the interactive model of Miles and Huberman. The results of this study indicate that the effectiveness of financing affects the financial performance of MSMEs with the Return On Equity is classified as very good in increasing MSME business income, and mudharabah financing improves MSME financial performance very effectively in the correct use of funds for asset purchases, business development, increased income. clean and generate high profits.

Euro area banking and monetary policy shocks in the QE era

This paper assesses the effects of monetary policy shocks on the macroeconomy and the euro area banking sector after the global financial crisis. First, financial risk-return indicators of the banking sector based on a compound option-based structural credit risk model are embedded in a large macro-financial quarterly database covering the period 2008Q4–2019Q4. Second, a SFAVAR identifies and estimates the shocks’ responses relating them to the endogenous build-up of banks’ vulnerabilities which are consistent with the internally coherent structure of the credit risk model. By introducing structure in the understanding of banks’ asset-liability management behavior following monetary policy shocks, the research strategy contributes to disentangling results that are often mixed in the empirical literature. The study finds that unconventional monetary policy, in particular the Asset Purchase Program of the European Central Bank, seems to have been more successful than conventional monetary policy in raising output and inflation. The desired boost to bank lending has been muted and loan cyclicality has varied across countries and loan types. The performance of the banking sector following monetary policy shocks can be characterized by a drop in expected return on equity and assets, a relaxation of lending conditions and increased correlation between banks’ assets return and the market return, a mechanism pointing to enhanced risk-taking. While banks’ probabilities of default fall following monetary policy shocks, the price of risk increases. Banks’ net worth rises via higher market capitalization and implied assets value together with lower volatility, despite often incurring more debt. Risk-taking in the banking sector may pose a risk to financial stability, especially if its effects on banks’ vulnerability spread and increase systemic risk. The unintended endogenous build-up of macro-financial vulnerabilities may need to become part of monetary policymaking.

Text-Based Recession Probabilities

This paper proposes a new methodology based on textual analysis to forecast US recessions. Specifically, it presents an index in the spirit of Baker et al. (JAMA 131:1593–1636, 2016) and Caldara and Iacoviello (JAMA 1222, 2018) that tracks developments in US real activity. When used in a standard recession probability model, this index outperforms the yield curve-based forecast, a standard method to forecast recessions, at medium horizons, up to 8 months. Moreover, the index contains information not included in yield data, that are useful to understand recession episodes; when included as an additional control along with the slope of the yield curve, it improves forecasting accuracy by between 5% and 40%, depending on the horizon considered. These results are stable to a number of different robustness checks, including different estimation methods, different definitions of recession and controlling for asset purchases by major central banks. Our textual analysis data also improve the forecasting accuracy of several other popular leading indicators for the US business cycle.Supplementary InformationThe online version contains supplementary material available at 10.1057/s41308-022-00177-5.

The ECB's asset purchase programme: Theory, effects, and risks

AbstractIn response to the Covid‐19 crisis, the European Central Bank (ECB) has relaunched a massive asset purchase programme within its combined‐arms monetary strategy. This paper surveys and discusses the theory and the evidence of the central bank's unconventional monetary tools for the euro area. It analyses the role of the asset purchase programmes in the ECB's toolkit and the associated risks, focusing specifically on the gradual unwinding of these unconventional initiatives. Finally, the paper offers some insight into the possible evolution of the ECB's monetary policy.

The War in Ukraine and the European Central Bank

European monetary policymakers face tough choices regarding the inflation and uncertainty fuelled by the war in Ukraine. They need to bring an end to the large-scale asset purchases and negative interest rates that have been the bulwarks of monetary-policy accommodation since 2015. They must also ensure that European monetary policy can be applied across countries while holding down the differences in sovereign borrowing costs between those governments that are financially strong, such as Germany, and those that are in a weaker position, such as Italy. Any solution to the problem of widening borrowing costs that is consistent with fighting inflation will impose losses on the central banks of stronger countries, while making it cheaper for those governments that receive support to borrow. Whatever it decides, the European Central Banks’s Governing Council does not have to be political to be perceived by the European public as making a political choice.

Do Individuals' Socio-Economic Characteristics Affect Crypto Asset Purchases? Evidence From Turkey

Do Individuals' Socio-Economic Characteristics Affect Crypto Asset Purchases? Evidence From Turkey

Counteracting large-scale asset purchase program: The Bank of Japan’s ETF purchases and securities lending

This study investigates the impact of the Bank of Japan’s (BOJ) exchange traded fund (ETF) purchasing program on the stock lending market. In particular, we focus on the fact that stocks held by ETF managers for the BOJ are lendable to other investors in order for them to make a short position in stock market. Using individual stock level data, we show that expansions of the ETF purchase program have substantially increased the supply of stocks in the lending market by changing the behavior of stock holders as the BOJ is expected to be a “buy-and-hold” type of investor. This result implies that such an active stock lending market would help to reduce the side-effects of the ETF program whereas the squeezing effect of the program on supply–demand balance in spot stock markets is mitigated.

Unconventional Policies Effects on Stock Market Volatility: The MAP Approach

Abstract Taking the European Central Bank unconventional policies as a reference, we suggest a class of multiplicative error models (MEMs) tailored to analyse the impact such policies have on stock market volatility. The new set of models, called MEM with asymmetry and policy effects, keeps the base volatility dynamics separate from a component reproducing policy effects, with an increase in volatility on announcement days and a decrease unfolding implementation effects. When applied to four Eurozone markets, a model confidence set approach finds a significant improvement of the forecasting power of the proxy after the expanded asset purchase programme implementation. A multi-step ahead forecasting exercise estimates the duration of the effect; by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt-troubled countries.

Economic Stimulus and Financial Instability: Recent Case of the U.S. Household

The effectiveness of government policies and economic stimuli during the 2007 financial crisis and the COVID-19 pandemic are compared in this study. While the 2007 financial crisis started in the real estate market and spread through the contagion effect to other sectors, the pandemic halted the all sectors of the global economy simultaneously. In the United States, where the social safety net is not as strong as other advanced economies, the unemployment rate skyrocketed and many families lost income. The federal government countered with various relief packages, which have been, unlike the rounds of quantitative easing prevalent after the 2007 financial crisis, direct payments to households and businesses. The Agent Instability Indicator and default elasticity coefficient are used to quantitatively assess the financial instability and default risk of subgroups of United States households classified by percentile of income and net worth. It turns out that the financial instability level of the United States household during the pandemic has not been as high as that during the 2007 crisis and the Great Recession. It is concluded that the direct handout of cash—so called helicopter money—is more effective at preventing financial collapse and stabilizing the economy than quantitative easing through asset purchase.

Экономическое положение и перспективы мировой и российской экономики в 2022 г.: взгляд ООН, комментарий ЦМАКП

The UN DESA report is dedicated to the topic of global economic recovery after the dramatic recession of 2020 caused by the shock of the COVID-19 pandemic. It is noted that the recovery was extremely uneven in different regions of the world. A number of developing countries were unable either directly or indirectly (through improved terms of trade) to benefit from the results of asset purchase programs in the most developed countries and, on the contrary, suffered losses due to rising world prices for energy and food. It is stated that there is a significant deterioration in the situation regarding overcoming extreme poverty.

The Recent Surge in Money Growth: What Would Milton Friedman Say?

The M2 money supply has grown by almost 40% since 2019. This number by itself raises the strong possibility that we have entered a new and remarkable era in United States monetary history. But what would Milton Friedman say?Friedman's most famous work, his Monetary History of the United States, co‐authored with Anna Schwartz, provides a narrative account of events that links volatility in the money supply to economic instability, particularly during the Great Depression of the 1930s. And many of his subsequent articles focused on the role played by excessive money growth in generating the inflationary, boom‐bust cycles of the 1970s. An examination of these writings leaves little doubt that Friedman would be quite concerned about the recent surge in M2.Toward the end of his career, however, Friedman saw that the tight statistical links between money, output, and inflation that formed the basis for his lifetime's work had started to weaken. These same shifting correlations led other monetary economists and Federal Reserve policymakers to downplay the importance of changes in the money supply and to emphasize instead the role of interest rates in transmitting the effects of monetary policy to the broader economy.This paper takes a fresh look at the data, extended through the present, with the help of insights gleaned from Friedman's writings. It finds that when the sharp reduction in the velocity of money is accounted for, the historical relationships between money, output, and inflation that Friedman originally discovered reappear, even in the most recent data. These findings confirm what surely would be Friedman's concern: that unless the Federal Reserve moves decisively to wind down and reverse its large‐scale asset purchases and raise its target for the federal funds rate, higher inflation will persist.

Integrating Accounting and Logistics Strategy in Business Management

The effective business management in adverse economic conditions necessitates the search for ways for integrating business accounting with innovative approaches to business management of material resources, especially the logistics system. 
 The need to integrate business accounting of material assets with the logistics system is substantiated by giving evidence of the complicating conditions for transportation of material assets in recent years, related, inter alia, with quarantine limitations. It is stressed that the requirements to logistics strategies are increasing along with growing transportation costs, diminishing deposits of natural resources, creating new product lines, setting new criteria for social, technological and environmental dimensions of business activities. It argued that when management staff overlook or ignore the potentials offered by logistics tools for management of material resources or when business accounting has no links with logistics, the impact of management on the purchase of material assets will be less effective. 
 Theoretical foundations of the integration of business accounting and logistics strategy of transactions with material assets for the achievement of economic security of business activities are highlighted. The principal dimensions for such integration (organizational, methodological, control and protective) and their key components are discussed. Organizational and technical schemes are proposed, aimed at creating a business accounting system integrated with other management functions (planning, economic analysis, control), in order to enhance the orientation of business enterprise on the effectiveness of logistics activities and achievement of economic security. The main objectives of business accounting with respect to logistics costs are determined for the business enterprises implementing the abovementioned approach to organization of logistics management.

Die EZB-Geldpolitik in der Zwickmühle

AbstractIt seems clear that the ECB will raise interest rates in July 2022 and end its asset purchase program. This should send a strong and important signal to markets and economic players that the ECB continues to take its mandate for price stability seriously. However, it cannot be said with absolute certainty that these monetary policy decisions herald the start of a gradual tighter stance toward monetary policy normalisation. This is because economic uncertainty is currently extremely high. The ECB therefore finds itself in a difficult dilemma: It must take decisive action against high inflation, but should retain plenty of flexibility to be able to respond to a renewed crisis.

The dynamics of money supply determination under asset purchase programs: A market-based versus a bank-based financial system

This paper proposes a new analytical framework incorporating asset prices and bank credit to investigate the determination of the money supply. Based on multivariate time-series analyses, this paper provides the first evidence that central bank asset purchases, asset prices and bank credit are closely linked to the money supply. Strong evidence of clear differences in the dynamics of money supply determination between the U.S. and Japan has also been found. Firstly, the asset purchases of the Federal Reserve tend to increase the money supply to a greater degree. Secondly, dynamic interactions between asset prices and the money supply are stronger in the U.S. And thirdly, bank credit is more essential to the determination of the money supply in Japan. These findings provide new insights into how financial structure influences the transmission mechanism of unconventional monetary policy.

New approach of the Fed to the implementation of monetary policy

The focus of the article — current framework of implementation of monetary policy by the Federal Reserve System (the Fed), which is substantially different from the framework used before the crisis of 2007–2009. The contemporary regime was evolving gradually and for some time the Fed discussed two possible alternatives — return to the previously used regime or remain in the framework, formed after the crisis of 2007–2009. It took about 10 years for the Fed to decide: to conduct monetary policy in the "ample reserves" regime in which control over the short-term rates is exercised through the setting of administered rates, avoiding the need to actively manage the supply of reserves. In the article we discuss the similarities and differences between regimes with limited and ample-reserves, and the effectiveness of new regime during the pandemic crisis. Since the selected monetary policy implementation framework does not rely on precise adjustments of the supply of reserves to control short-term interest rates, the shift to operating at historically maximum reserve levels resulting from large-scale asset purchases during 2020–2021 was smooth, and the effective federal funds rate and other rates remained relatively stable in this period. We also consider the peculiarities of the use of standard and unconventional monetary policy tools during the COVID-19 pandemic, the reasons for introducing in 2021 the new tools and facilities of the Fed, and possible path of monetary policy in the conditions of growing infl ation and the removal of the current level of accommodation in 2022.

SPILLOVERS OF GLOBAL LIQUIDITY AND MONETARY POLICY DIVERGENCE FROM ADVANCED ECONOMIES TO VIETNAM

This paper studies the spillovers of global liquidity and monetary policy divergence from advanced economies to Vietnam. Applying the structural Bayesian Vector Auto-Regressive model with Sims–Zha prior distribution, we find that unconventional monetary policy shocks of major central banks led to a reduction in inflation and short-term interest rate as well as an appreciation of local currency in Vietnam. However, market liquidity provided by surge in the cross-border credit flow led to a temporary upward pressure on inflation, interest and foreign exchange rates. Both types of global liquidity caused an insignificant effect on stock price which evidence the dominance of traditional interest rate and bank-lending over asset price channels in Vietnam. When disintegrating the effects among the monetary shocks from the US, European Union and Japan, the empirical result reveals some evidence of contradictory effects. Accordingly, GDP decreased after Fed’s asset purchase while it slightly increased following the same action from European Central Bank. Quantitative easing shocks also caused a depreciation in USD and Euro, resulting in a decrease in foreign exchange rate but large-scale asset purchase from the Bank of Japan is translated into an upward trend in the exchange rate.

ОСОБЛИВОСТІ ДИВЕРСИФІКАЦІЇ ТА РЕБАЛАНСУВАННЯ ПОРТФЕЛЯ ЦІННИХ ПАПЕРІВ: АСПЕКТИ ОРГАНІЗАЦІЇ ДІЯЛЬНОСТІ ІНВЕСТИЦІЙНИХ ФОНДІВ

Features of diversification and formation of individual parts of the securities portfolio, as well as the parameters of bringing it to the planned parameters have a significant impact on investment efficiency and risk. The urgency of rebalancing the securities portfolio in the activities of investment funds has been clarified, as such entities often have a certain policy on the structure of assets and liabilities. The aim of the work is to clarify the features of rebalancing the securities portfolio, which ensure the optimal parameters for the level of return on investment and risk. The need to rebalance the portfolio of securities in the long run due to the objective existence of the life cycle of companies, which determines the importance of timely sale of their shares. The connection between the peculiarities of rebalancing the securities portfolio and the issues of its risk and efficiency is clarified. Features of different types of such rebalancing from the point of view of influence on balance of risk and efficiency are considered. No type of rebalancing can achieve both risk minimization and efficiency maximization. The classification of types of corresponding rebalancing is carried out. The optimality of the type of rebalancing of the securities portfolio depending on the market features is specified: speculative or investments; and the impact of taxation on the intensity of asset purchase and sale transactions was defined. The main disadvantage of this type of rebalancing as profit-taking is a significant increase in taxes and deterioration of the portfolio structure due to the sale of assets, which are constantly rising in price and purchase of bad assets. This type of rebalancing is not optimal for markets (e.g., the US) and stocks that are constantly rising in price, but is appropriate for speculative volatile markets (e.g., China and East Asia) and assets. The main alternative to this type of rebalancing is to record losses or follow a certain index. An example of the practical use of this type is the Vanguard S&P 500 ETF, which completely repeats the structure of the S&P 500 stock index while buying stocks that rise in price and sells, on the contrary, decreased. This type of rebalancing of the securities portfolio is considered optimal for emerging markets and stocks. An alternative to these two types of rebalancing is one that involves the sale of assets only in the event of a loss of fundamental attractiveness. The change of portfolio shares is carried out by purchasing additional assets upon receipt or appearance of cash. However, this almost eliminates the targets of diversification in terms of risk management. Criteria for determining the stage of aging of the company and the time of sale of its shares are proposed. It has been established that holding bonds in a portfolio in order to provide a reserve for acquiring shares at the time of their price fall is advisable only when expecting a nonsystemic crisis, that is, a crisis for an individual asset; in the activities of investment management institutions, the type of rebalancing of the securities portfolio should be a secondary issue, as the economic basis for their economic efficiency in the long run is the selection, purchase and holding of fundamentally attractive shares.