Asset Purchases Research Articles

Combining Negative Rates, Forward Guidance and Asset Purchases: Identification and Impacts of the ECB's Unconventional Policies

This paper provides new empirical evidence that bears on the efficacy of unconventional monetary policies when the main policy rate is negative. When a negative interest rate policy (NIRP) is deployed in concert with rate forward guidance (FG) and quantitative easing (QE), the identification of the impacts of these unconventional instruments of monetary policy is challenging. We propose a novel identification approach that seeks to overcome this challenge by combining a dense, controlled event study with forward curve counterfactuals that we construct using predictive rate densities derived from rate options. We find that NIRP has exerted a sizeable influence on the term structure of interest rates throughout maturities while, on net, the impact of rate FG has been more muted. QE explains the lion’s share of yield effects, particularly over the back end of the yield curve. We then feed these rate counterfactuals into a large-scale Bayesian VAR and generate alternative histories for the euro area macro-economy that one would likely have observed between 2013 and 2020 in no-NIRP (with or without FG) and in no-QE regimes. According to this conditional forecasting exercise, in 2019 GDP growth and annual inflation would have been 1.1 p.p. and 0.75 p.p. lower, respectively, and the unemployment rate 1.1 p.p. higher than they actually were, had the ECB abstained from using NIRP, FG and QE over the previous six years or so. JEL Classification: C32, C54, C58, E50, E51, E52

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

Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

In the presence of negative monetary-policy rates and a zero lower bound on deposit rates, banks that are more exposed to central banks' asset-purchase programs reduce their lending to the real economy by more than their counterparts. When banks face a lower bound on customer deposit rates, an asset swap between securities and reserves reduces banks' net worth as the cost of holding reserves cannot be matched with a reduction in their cost of funding. Exploiting euro-area syndicated lending data and the German credit registry, we provide evidence that deposit-reliant banks with relatively higher funding costs and greater exposure to large-scale asset purchases reduce corporate lending relatively more, have lower stock returns, and rebalance their interbank lending from safe to risky countries.

Accounting and Management of Fixed Assets in Basic Medical and Health Institutions under the Governmental Accounting System

The implementation of the governmental accounting system has had an important impact on the accounting of primary medical and health institutions. In response to the changes in the new system, starting from the classification adjustment and measurement of the fixed assets of the primary medical and health institutions, the connection between the old and the new accounting system will be discussed. At the same time, in order to improve the fixed asset management after the implementation of the new system, suggestions will be made from asset purchase, accounting, management and information construction.

Non-Bank Financial Intermediation in the Euro Area: Implications for Monetary Policy Transmission and Key Vulnerabilities

The financing structure of the euro area economy has evolved since the global financial crisis with non-bank financial intermediation taking a more prominent role. This shift affects the transmission of monetary policy. Compared with banks, non-bank financial intermediaries are more responsive to monetary policy measures that influence longer-term interest rates, such as asset purchases. The increasing role of debt securities in the financing structure of firms also leads to a stronger transmission of long-rate shocks. At the same time, short-term policy rates remain an effective tool to steer economic outcomes in the euro area, which is still highly reliant on bank loans. Amid a low interest rate environment, the growth of market-based finance has been accompanied by increased credit, liquidity and duration risk in the non-bank sector. Interconnections in the financial system can amplify contagion and impair the smooth transmission of monetary policy in periods of market distress. The growing importance of non-bank financial intermediaries has implications for the functioning of financial market segments relevant for monetary policy transmission, in particular the money markets and the bond markets.

Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

In the presence of negative monetary-policy rates and a zero lower bound on deposit rates, banks that are more exposed to central banks’ asset-purchase programs reduce their lending to the real economy by more than their counterparts. When banks face a lower bound on customer deposit rates, an asset swap between securities and reserves reduces banks’ net worth as the cost of holding reserves cannot be matched with a reduction in their cost of funding. Exploiting euro-area syndicated lending data and the German credit registry, we provide evidence that deposit-reliant banks with relatively higher funding costs and greater exposure to large-scale asset purchases reduce corporate lending relatively more, have lower stock returns, and rebalance their interbank lending from safe to risky countries.

Constraints on QE are coming into view

▀ The MPC's self‐imposed limits on QE mean it could run out of room for more asset purchases should another major economic shock, such as from another global lockdown, hit in the near future. This raises the odds of negative interest rates in our view. ▀ By the end of 2021 the BoE may own over half of conventional gilts. This would make repeating the QE response on the scale seen last year difficult, were the MPC to maintain its current criteria on purchases. Relaxing those criteria would raise its own problems. ▀ But with vaccine developments shifting economic risks to the upside, and a political and economic climate favourable to loose fiscal policy, questions of QE headroom could prove academic. Still, they may have a bearing when the MPC eventually decides to tighten policy.

Not All Shocks are Created Equal: Assessing Heterogeneity in the Bank Lending Channel

We provide evidence that the strength of the bank lending channel varies considerably across three major events in the European sovereign debt crisis - the Greek debt restructuring (PSI), outright monetary transactions (OMT), and quantitative easing (QE). We study how lending responds to each shock using detailed bank, firm, and household data from Portugal, a country that was directly exposed to the three events. While the price of sovereign debt securities increased in all three events, banks reduced sovereign debt holdings and realized accumulated capital gains only after QE. As a result, lending to final borrowers reacted more strongly to QE than to the PSI or OMT events. Our results suggest that asset purchases were more effective than signalling events at stimulating the bank lending channel. JEL Classification: E52, E58, G18, G21

A Preferred‐Habitat Model of the Term Structure of Interest Rates

We model the term structure of interest rates that results from the interaction between investors with preferences for specific maturities and risk‐averse arbitrageurs. Shocks to the short rate are transmitted to long rates through arbitrageurs' carry trades. Arbitrageurs earn rents from transmitting the shocks through bond risk premia that relate positively to the slope of the term structure. When the short rate is the only risk factor, changes in investor demand have the same relative effect on interest rates across maturities regardless of the maturities where they originate. When investor demand is also stochastic, demand effects become more localized. A calibration indicates that long rates underreact to forward‐guidance announcements about short rates. Large‐scale asset purchases can be more effective in moving long rates, especially if they are concentrated at long maturities.

Особливості українського ринку злиттів і поглинань

The article is aimed at researching the current state and peculiarities of the Ukrainian M&A market. The market of mergers and acquisitions in Ukraine began to form in the 90s of 20th century, that is, the market is relatively young, but already has its own history, which consists of a consistent four stages: privatization; post-privatization; corporate and speculative. The domestic M&A market is characterized by the formation of a tendency to increase the value of agreements. During the research period (2013–2020), the most expensive M&A agreements in Ukraine were most often concluded in such sectors of the economy as communication and media, financial sector, agriculture. The level of transparency remains low, that is, in Ukraine more than 40% of agreements were concluded without disclosing the cost. Ukrainian investors practically do not participate in the purchase of foreign assets within the framework of mergers and acquisitions agreements. Until 2013, the main investor in the Ukrainian M&A market was Europe, now it is the CIS countries, and the participation of American companies is also growing. The COVID-19 pandemic has had a negative impact on all countries of the world. Ukraine’s GDP decreased by 4.4%, which was the largest drop since 2013–2014. Also in Ukraine significantly decreased the number of agreements on the M&A market (decreased by 15%, and the total value of agreements decreased by 62%). A negative characteristic feature of the domestic M&A market is the presence of raider seizures, which hinders the development of this market. Using the data of the Unified State Register of Court Decisions, we determined that from 500 to 700 raider attacks are recorded annually in Ukraine. Thus, during the research period (2013–2020), 3,242 raider seizures were recorded in Ukraine. In this regard, the government of the country has developed measures to overcome this phenomenon. Thus, in 2020, the Law of Ukraine «On Amendments to Certain Legislative Acts of Ukraine on Countering Raiding» came into force, which will contribute to the improvement of the investment attractiveness of the country, will ensure the growth of the domestic market of mergers and acquisitions.

Вплив процесів злиттів і поглинань на конкурентоспроможність галузі сільського господарства

Mergers and Acquisitions (M&A) are widespread in the business world, being one of the means of competition. They belong to agreements between two companies that become combined in one form or another. Although mergers and acquisitions are used as synonyms, they have different meanings. When merged, two companies of the same size are combined into one new enterprise. Acquisitions are a situation in which a larger company acquires a smaller company, thereby taking over the business of the latter. M&A agreements may be friendly or hostile, depending on their approval by the board of directors (management) of the target company. The main reasons for mergers and acquisitions can be called the desire of companies to increase the growth rate, strengthen and stabilize supply chains and sales of products, diversify production, optimize the tax burden, as well as strengthen their market positions due to reputational advantages. The article analyzes the normative and legislative acts of Ukraine regulating the procedure for concluding M&A agreements, as well as displaying information about them in both the accounting and the financial statements of enterprises. Regarding the regulation of the procedure for concluding M&A agreements, there are no clear definitions of these terms. These concepts are considered only in the context of methods of formation, reorganization or liquidation of enterprises. The authors have allocated some aspects of taxation of operations on the purchase and sale of assets and shares in the implementation of M&A agreements. The relevance of the chosen topic is due to the strengthening of the tendency to the concentration of resources (land banks) by large agricultural enterprises in Ukraine. The statistics on M&A agreements in the agro-industrial sector of Ukraine for the period 2018-2020 are to testify to this tendency. Positive aspects of mergers and acquisitions for agricultural enterprises, as well as risk factors that may appear as a result of an increase in the share of foreign companies in the agro-industrial sector of Ukraine, have been allocated.

Макроэкономическая политика на перепутье

The article examines macroeconomic policy options for advanced economies to respond to adverse shocks in the environment of very low interest rates and very high levels of public debt, when the scope for using conventional policy tools is limited. The standard transmission mechanism of monetary policy in the ELB conditions stops working normally, and the economy faces the “liquidity trap” effect. The deployment by central banks of unconventional monetary tools (forward guidance, quantitative easing, and negative interest rates) after global financial crisis was helpful in combatting the downturn, but carries risk of possible side effects. Large-scale purchases of financial assets lead to significant increase in central banks’ balance sheets, and this creates a threat to future financial stability and central bank independence. Negative interest rates can have detrimental effects on bank profitability and be contractionary through bank lending. There is a consensus that today fiscal policy has to play a major role in stabilizing the business cycle. But the effectiveness of conventional tools of discretional fiscal policy is uncertain because of long political lags and small spending multiplier. Existing automatic fiscal stabilizers are focused on social protection goals and not on macroeconomic stabilization. Thus, the newly proposed measures for rules-based fiscal stimulus (asymmetric semiautomatic stabilizers – tax or spending measures triggered by the crossing of some statistical threshold, e.g. a high unemployment rate) and unconventional fiscal policy (the use of consumption taxes to increase inflation expectations) have become the object of active discussion. Here lies the danger in the fusion of monetary and fiscal policy: central banks’ operations are becoming increasingly quasi-fiscal, aimed at financing budget deficit, and functions of monetary policy are proposed to assign to fiscal policy. Besides, the expansion of fiscal stimulus threatens financial stability in the future, as it leads to increase in public debt and narrows a country’s fiscal space.

Пандемия COVID-19: реакция мировых центральных банков на экономический спад

Measures to mitigate the effects of the COVID 19 pandemic on households and businesses taken by Western governments in 2020 had serious negative consequences for the global economy. There was a widespread fall of production and trade, the closure of enterprises and stagnation of entire industries, sharp increase in unemployment, rise of uncertainty and risks. In an effort to slow the development of economic downturn the central banks and the Treasuries had taken wide range of monetary measures. Some of which were the continuation of the programs initiated during the period of global financial crisis of 2007–2009 and adapted to the current economic situation and the others represented new programs for the purchase of financial assets and granting credit facilities to enterprises and households. These actions, aimed primarily at the issue of additional quantities of money into the circulation, were distinguished by very large scale and high speed of decision-making. The author’s analysis led to a conclusion that the monetary policy during COVID 19 pandemic helped to stabilize financial markets, preserved the activities of a part of small and medium-sized enterprises and improved employment in the labor market. At the same time, massive “quantitative easing” operations increased the risk of financial instability and the likelihood of emerging of difficult-to-control inflationary spiral in Western economies. As to the achievement of strategic goals of monetary policy in the macroeconomic sphere, the success was much less noticeable due to the influence of many nonmonetary factors on the level of employment and the rate of economic growth.

Explaining global imbalances: the role of central-bank intervention and the rise of sovereign wealth funds*

Neoclassical economic theory views current-account imbalances as the result of (individual) decisions to save more than to invest domestically. Monetary analysis in the Keynesian tradition rejects such approaches and emphasizes that a country's net savings are the result, not the cause, of net selling of goods and services to foreigners. The latter, in turn, depends on global demand patterns and absolute advantages between countries. We complement this Keynesian approach, taking a closer look at the financial account of the balance of payments: a necessary condition for countries to net-sell goods and services to foreigners is the willingness of domestic sector(s) to accumulate net foreign assets. While previous analysis of global imbalances has partially discussed the role of central banks' reserve accumulation it has failed to incorporate the macroeconomic role of sovereign wealth funds (SWFs). We analyse eight surplus countries' external positions and find that the public sector typically purchases and manages significant amounts of foreign assets via both central banks and SWFs. This, in turn, supports current-account surpluses. We then consider the particular case of Switzerland where, contrary to other surplus countries, public-sector purchases of foreign assets had been absent for a long time, yet set in massively after 2008.

Subjective Side of the Criminal Offense of Illicit Enrichment

The purpose of the article is to research the mental element of illegal enrichment through analyzing the characteristics and development a new legal framework to improve the article 3685 of the Criminal Code of Ukraine. The methodological basis of the study is a set of methods of scientific cognition, among which the dialectical method of cognition occupies the main place that helps to identify theoretical, legislative and applied aspects of illegal enrichment. Moreover, our research has general and special methods: formal-logical, system-functional, comparative-legal and historical-legal. The scientific novelty of the article is that article to views actual problems the mental element of illegal enrichment to use modern methods of cognition and new research. It is proposed specific proposals to improve the article 3685 of the Criminal Code of Ukraine. According to the results of the conducted research, the following conclusions have been formulated mental element of illegal enrichment. Illegal enrichment can be with direct intent. It is proposed an intellectual intent the direct intent like a mental attitude of the person to the action that has three blocks of features: a) signs of action (the guilty party recognizes the risk of action the purchase of assets); b) social status (the subject to understand his legal status in public authorities or local governments) c) other characteristics the crime that vary with place, environment and time. At the same time, extroverted moment is desire to respond to socially dangerous actions, namely the desire to activate. The motive is mercenary (the method of which is illegal prohibited by law possession of material goods (acquisition of assets) for their own); the purpose is to acquire assets as a result the person might be to take any action at his discretion; emotional state – a state of strong emotional excitement (physiological affect) does not affect how discrimination of illegal enrichment. It is proposed to the article 3685 of the Criminal Code of Ukraine add before words “acquisition of assets…by a person” the word “deliberate”

The Effects of the ECB's Pandemic-Related Monetary Policy Measures

We assess the macroeconomic impact of pandemic-related monetary policy measures of the ECB. Conditioning on counterfactual interest rate paths that would have materialised in the absence of the policies, the macroeconomic effects are measured using structural vector autoregressions. In the framework, multiple monetary policy measures may simultaneously be analysed. According to our results, the asset purchase programmes implemented during the crisis have increased the annual GDP growth by approximate 2 percentage points in 2020–2021 and inflation by 0.5 percentage points. The longer-term refinancing operations have contributed positively but more mildly to the economic activity.

Macroeconomic stabilisation and monetary policy effectiveness in a low-interest-rate environment

The secular decline in the equilibrium real interest rate observed over the past decades has materially limited the room for policy-rate reductions in recessions, and has led to a marked increase in the incidence of episodes where policy rates are likely to be at, or near, the effective lower bound on nominal interest rates. Using the ECB's New Area-Wide Model, we show that, if unaddressed, the effective lower bound can cause substantial costs in terms of worsened macroeconomic performance, as reflected in negative biases in inflation and economic activity, as well as heightened macroeconomic volatility. These costs can be mitigated by the use of nonstandard instruments, notably the joint use of interest-rate forward guidance and large-scale asset purchases. When considering alternatives to inflation targeting, we find that make-up strategies such as price-level targeting and average-inflation targeting can, if they are well-understood by the private sector, largely undo the negative biases and heightened volatility induced by the effective lower bound.

Long-Term Liquidity Effects of Large-Scale Asset Purchase Programs: Evidence from the Euro Covered Bond Market

Long-Term Liquidity Effects of Large-Scale Asset Purchase Programs: Evidence from the Euro Covered Bond Market

The Impact of Asset Purchases in an Experimental Market with Consumption Smoothing Motives

The Impact of Asset Purchases in an Experimental Market with Consumption Smoothing Motives

Is Now the Time for Modern Monetary Theory or Permanent Monetary Finance?

In response to the COVID-19 pandemic, G7 central banks have launched asset purchase programs in anticipation of an increase in government bond offerings to finance ballooning fiscal deficits. As the volume of government bonds owned by private investors is not expected to rise during the current crisis, these programs will amount to a monetization of large additional debt. The idea that the government sells bonds to the central bank or issues money by literally spending it into existence also plays a key role in Modern Monetary Theory (MMT), the concept of helicopter money and the idea of permanent monetary finance. This article subjects key aspects of MMT to critical examination and shows, using MMT’s own balance sheet analysis, that the theory is almost always contradicted by the actual workings of the modern credit economy. In fact, MMT seems to be a collection of prescriptive ideas that dictate how things should function as opposed to how they actually do.