Monetary Policy Tools Research Articles

External Shocks, Asset Prices, and Credit Dynamics in Morocco: Insights from Disequilibrium Models

We investigate external shocks and asset price’s impact on the slowdown of business and household credit in Morocco using disequilibrium models. The results show that banks’ fly to quality, driven by a simultaneous decline in interest margins and borrower creditworthiness, is a key factor behind the slowdown of credit supply. On the demand side, slower growth and saturated housing demand have contributed to reduced borrowing and repayment capacity of borrowers. Furthermore, external shocks are transmitted to credit supply through foreign deposits and households’ credit demand through remittances. Additionally, stocks and residential real estate asset prices are closely tied to credit demand. These findings suggest that addressing bank credit barriers could stimulate economic growth. To do so, policymakers may consider employing unconventional monetary policy tools to effectively manage the transmission channels of external shocks and asset prices to bank credit dynamics.

The influence of unconventional monetary policy tools: an euro area perspective

Purpose – This article aims to investigate the influence of unconventional monetary policy tools (UMPTs) employed by the European Central Bank (ECB) on the inflation rate and GDP growth rate within the euro area, motivated by the principles of the Taylor rule. Research methodology – Elastic net regression with ARIMA residuals was used to analyse the relationship between UMPTs and economic indicators, measured by adjusted R-squared. Six samples were constructed, and hypothesis testing was performed using moving block bootstrapping. Residual diagnostics were used for model validation. Findings – The study revealed significant impacts of UMPTs, particularly in combination with interest rates, on inflation rates. However, adjusted R-square values for GDP growth rate were less pronounced, indicating a more complex relationship. Research contributes to understanding the dynamics of monetary policy transmission mechanisms, informing policy institutions, and guiding future research directions. Research limitations – Limitations include the focus on the euro area and the absence of analysis in other major economies. Future research should address these limitations and incorporate additional variables for a more comprehensive analysis. Practical implications – The findings provide insight for policymakers regarding the efficacy of UMPTs in influencing inflation rates, aiding in informed decision-making in monetary policy formulation and implementation. Originality/Value – This study contributes novelty by comprehensively analysing the relationship between UMPTs and economic indicators within the euro area, providing valuable insight into monetary policy institutions, and guiding future research directions.

The Distributive Impact of Unconventional Monetary Policies: Old and New

ABSTRACT In this paper we analyze the impact of less conventional monetary policy tools on the personal and functional distribution of income. We focus on the issuance of central bank digital currency (CBDC) in a comparative perspective, using a stock-flow consistent model of the eurozone economy. We consider two kinds of policies: helicopter money policies such as Quantitative Easing and the issuance of a CBDC; and scenarios not based on balance sheet expansions, such as an interest rate policy following the Pasinetti Rule, or a sterilized issuance of CBDC. Monetary policies using CBDCs tend to increase the wage share at the expense of financial rents. The targeted issuance of CBDCs to firms might produce an increase in GDP, corporate profits, and the wage share. The Pasinetti Rule reduces personal income inequality the most, but if applied mechanically, its impact on growth is also the least desirable.

The impact of monetary policy interventions on economic stability during global pandemics; a case study of the United States’ monetary policy initiatives in the fight against the Covid 19 pandemic

The study assesses the importance of monetary policy in the fight against global pandemics. Specifically, the study delves into United State’s monetary policy responses to the unprecedented COVID 19 pandemic; a global pandemic that pushed governments across the globe to institute strict measures as well as impose restrictions in their quest to contain the virus and ultimately minimize its economic ramifications. As such, the study compares the impact of monetary policy on economic growth (Real GDP) during the pandemic as against the pre-pandemic periods with the goal of assessing its relative impact on ensuring economic stability. The research shows that the impact of traditional monetary policy tools on economic stability and growth diminished during the Covid 19 pandemic compared to the pre-pandemic period. The pandemic, therefore, introduced a novel economic dynamic, one that various world economies were evidently not ready for. The result of the study calls for a holistic and adaptive monetary policy in periods that engender major economic uncertainties, such as global pandemics. The study shall add to the discourse regarding the limitation of monetary policy during pandemics. It shall provide suggestions that seek to enhance economic resilience and provide pertinent information that could potentially be incorporated into designing strategies that minimize the economic impact of pandemics in the future. Keywords: Pandemic, GDP, Economic Stability, Monetary Policy, COVID 19, Intervention, Economic Growth.

The Evolution of the Federal Reserve’s Agency MBS Holdings

The Federal Reserve (Fed) utilized its balance sheet as a monetary policy tool in response to the Global Financial Crisis (GFC) and the COVID-19 pandemic, acquiring large quantities of Treasury and agency securities. In 2022, the Fed began to reduce the size of its securities portfolio held in the System Open Market Account (SOMA) by allowing securities to roll off its balance sheet in amounts up to specific monthly redemption caps for Treasury securities and agency securities.

Determinants of the choice of exchange rate regime in oil-exporting countries

This study examines the factors that determine exchange rate regime choice in oil-exporting countries. We run ordered logit regressions for an unbalanced panel dataset of 138 countries covering 1974–2021 and confirm that oil-exporting countries are more likely to adopt a fixed exchange rate regime than other countries. The main reason for this is that, given the volatility and uncertainty of oil revenues, traditional monetary policy tools are ineffective, resulting in the exchange rate serving as a nominal anchor. This is supported by our findings on the distinct roles of output volatility, government spending, fiscal cyclicality, and central bank independence in determining exchange rate regimes in oil-exporting countries.

The Impact of Some Monetary policy Tools on the Net Flow of Foreign direct investment in Iraq for the Period 2003 - 2019

The Impact of Some Monetary policy Tools on the Net Flow of Foreign direct investment in Iraq for the Period 2003 - 2019

Macroprudential policy effectiveness and interaction with monetary policy: Lessons from debt service-to-income cap implementation in Kazakhstan

We take advantage of the early adoption of the debt-service-to-income cap (DSTI) measure in Kazakhstan, as well as available granular information from the local credit registry to study the effects of macroprudential instruments on core financial stability parameters. Our results show that implementation of a DSTI cap of 50 % leads to around a 9 % decrease in 12 months in the amount of outstanding debt on average for the range of credits originated just around the introduction of the DSTI cap. We find that DSTI cap implementation decreased the probability of delinquency rates of loans by about 20 % in 12 months on average compared to credits granted before the realization of the DSTI cap. We provide evidence on the importance of loan size heterogeneity across time when estimating the impact of macro-prudential intervention, which is partly overlooked in the existing literature. Finally, our results suggest that macroprudential and monetary policy tools can be complementary depending on the specific business cycle developments.

Analysis of the Causal Relationship between Money Supply, Foreign Reserves and Bank Credit in Oil Countries: Evidence from Iraq

This study investigates the causal relationships among money supply, foreign reserves, and bank credit in Iraq, a major oil-producing economy. Understanding these interconnected variables is crucial for effective monetary policy formulation and macroeconomic stability. this study employs the Toda-Yamamoto approach to Granger causality testing and quarterly data spanning from 2004 to 2022 to capture the dynamics following the Iraq War and explore the post-conflict economic landscape. Granger causality tests are conducted to determine the direction of causality among the variables. Impulse response functions and variance decompositions provide insights into the magnitude and persistence of shocks, shedding light on the relative importance of each variable in influencing the others. The empirical findings reveal a bidirectional causal relationship between money supply and foreign reserves, indicating that changes in one variable significantly influence the other. Additionally, a unidirectional causality is observed, running from foreign reserves to bank credit, highlighting the significance of foreign exchange reserves in facilitating bank lending. However, no causal link is detected between money supply and bank credit, suggesting that monetary policy may have limited direct impact on credit expansion in Iraq’s banking sector. These results have important policy implications for the Central Bank of Iraq in managing monetary policy tools and navigating the challenges of an oil-dependent economy. The study contributes to the literature on monetary economics in resource-rich countries and provides valuable insights for policymakers and researchers alike.

Uncertainty and the transmission of monetary policy via bank liquidity creation

PurposeThis paper investigates the moderating role of uncertainty in the impact of monetary policy on bank liquidity creation.Design/methodology/approachUtilizing data from Vietnam spanning 2007–2022, the paper measures uncertainty in the banking industry through the dispersion of shocks to crucial bank-level variables and considers both interest rate- and quantity-based tools of the monetary policy regime. The study regresses economic models using different econometric methods, including the generalized method of moments (GMM) estimator in the main section and the least squares dummy variable corrected (LSDVC) estimator for the robustness check.FindingsMonetary expansion enhances banks’ ability to create liquidity, affirming the existence of the bank liquidity creation channel. Further analyses suggest that monetary policy adjustments aimed at regulating bank liquidity creation may be less effective in the presence of higher uncertainty in the banking system. This observation holds for both interest rate- and quantitative-based monetary policy tools, emphasizing the functioning of the monetary policy transmission mechanism through bank liquidity creation and the mitigating effect of uncertainty.Originality/valueThis study contributes novel insights to the existing literature by presenting the first attempt to explore the dynamics of monetary policy transmission through the bank liquidity creation channel in the context of banking sector uncertainty. Moreover, our contribution extends to examining a multi-tool environment, incorporating both interest rate- and quantitative-based indicators.

Effect of trade openness on economic growth in Nigeria

The study investigated the effect of trade openness on economic growth in Nigeria. Time series data were collected from the Central Bank of Nigeria Statistical Bulletin from 1990 - 2022. While balance of payment was the proxy for economic growth (the dependent variable); the proxies for the independent variable (trade openness) were import, export and broad money supply to act as control variable. The method of data analysis employed in this study includes descriptive statistics, correlation analysis and unit root test. Ordinary Least Square was used to estimate the model. The findings revealed that import has no significant effect on balance of payment; export has significant effect on balance of payment; while broad money supply has insignificant effect on balance of payment in Nigeria. The study recommends that government should encourage huge investment on infrastructure development in order generate more economic activities; reduce the cost of doing business and increase the factors that drive productivity in Nigeria; and ensure stability in the interest, exchange rate and other monetary policy tools.

Asymmetric Effect of Monetary Policy on Asset Prices: Contractionary VS Expansionary Regimes

This research study seeks to investigate the asymmetrical impact of monetary policy on asset prices (stock price and house prices as indicators of asset prices). Understanding this asymmetry is crucial for policymakers and central banks to evaluate the implications of expansionary and contractionary monetary policies on asset price dynamics. The study examines both interest rates and the money supply, which are key tools of monetary policy, to determine if they have similar effects on asset prices across various economic regimes in 51 countries with diverse income levels for the period of 2009 to 2021. Using a linear and non-linear ARDL (NARDL) approach this study analyze the short-run and long-run impacts of monetary policy on stock and house prices, besides comparing the symmetric and asymmetric impacts of monetary policy shocks on these prices. The outcomes accentuate the importance of policymakers being cognizant of the impacts of different policy regimes on asset prices. Notably, the study reveals a significant and negative short-term impact of interest rates on asset prices under contractionary monetary policy. Conversely, expansionary monetary policy does not demonstrate a significant short-term effect on asset prices. This study makes substantial contributions by deepening insights into the efficacy of monetary policy, offering practical guidance for policymakers, and addressing a pivotal void in the extant scholarly discourse.

Is energy firms' investment behavior more sensitive on corporate perception of monetary policy?

Central bank communication has emerged as a non-traditional monetary policy tool capable of mitigating adverse effects, policy uncertainties and stabilizing expectations, thereby affecting corporate investment behaviors. Additionally, monetary authorities among the pioneers are performed in promoting green growth. To shed light on the role of corporate perception of monetary policy in corporate investment and tell the heterogeneous effects between energy and non-energy firms, we employ the Chinese listed firm data during 2011 to 2022 to estimate the relationship. Our empirical findings reveal that corporate firms' investment behaviors are significantly sensitive on corporate perception of monetary policy. In specific, energy-intensive firms are more sensitive on such effects. Moreover, a series of working mechanisms is well explored. The corporate perception of monetary policy helps firms reducing financial risk, alleviating internal financial cost and external bank financing pressure to facilitate energy-intensive firms' investment behaviors. Furthermore, the heterogeneous of non-SOEs and high regulation level highly motivates energy-intensive firms to invest.

Revisiting the interest rate-investment nexus in India: fresh perspective from non-parametric analysis

PurposeIt is generally believed that business spending on capital expenditure tends to decrease as interest rates rise, and vice versa, this is not always the case. The previous literature produces inconclusive results vis-à-vis the interest rate and investment nexus. This study analyzes the responsiveness of investment to changes in high and low levels of interest rates in India through a quantile-based, non-parametric method utilizing annual data from 1980 to 2022.Design/methodology/approachThis study uses Quantile-on-quantile (QQ) technique proposed by Sim and Zhou (2015) to examine the impact of interest rate quantiles on quantiles of investment. In addition, long-term association and the direction of causality are estimated through the Cho et al. (2015) test of quantile cointegration and the Jeong et al. (2012) Granger causality in quantile (GCQ) test, respectively.FindingsThe empirical evidence validates that the linkage between investments and interest rate is not consistently negative and varies from quantile to quantile. The study finds a negative impact at median quantiles and a positive impact at extreme higher quantiles. Conversely, the impact at lower quantiles is negligible, which is also observed from quantile cointegration, indicating the presence of a statistically significant association above the median quantiles. Additionally, the study finds one interesting finding that there exists unidirectional causality from investment to interest rates in India rather than other way around.Research limitations/implicationsThe study provides significant implications for policymakers as it suggests that during extreme economic conditions, the effectiveness of traditional monetary policy tools to boost capital formation is restricted. Policymakers may consider alternative measures to stimulate investment during these time periods. The study additionally posits that the neoclassical theory of investment may not be readily applicable in emerging economies in its unaltered state, mostly due to the lack of well-developed financial markets.Originality/valueThere is a limited literature available on non-linear linkage between interest rates and investment. The present study adds to the existing knowledge by investigating how investment responds differently to fluctuations in interest rates, while incorporating the complete distribution of both the variables.

Coordination of monetary and macroprudential policies, land finance behavior and risk prevention in the real estate market

ABSTRACT This paper measures the real estate market risk in China by embedding the relative volatility of stock returns in the real estate industry into the Marginal Expected Shortfall Model. Subsequently, we examine the effectiveness of the coordination of monetary and macroprudential policies in preventing real estate market risk based on panel data from cities. Additionally, we investigate the impact of local government’s land finance behavior on the effectiveness of the coordination of these two policies. The results show that the tightening monetary policy can strengthen the restraining effect of macroprudential policy on real estate market risk. From the perspective of risk prevention in the real estate market, whether it is a quantitative or price-based monetary policy tool, land finance behavior can weaken the regulatory effect of the coordination of monetary and macroprudential policies. Moreover, this weakening effect is more pronounced in the regions with high vertical fiscal imbalance and intense economic competition. One of the important policy implications is that regulatory authorities should strengthen the coordination among local fiscal behavior, monetary policy, and macroprudential policy. This will enhance the effectiveness of the coordination of monetary policy and macroprudential policy to prevent risks in the real estate market.

Influence on Banks' Credit Risk Through Monetary Policy Instruments: A Study of Listed Commercial Banks in Pakistan

Monetary policy goals in any country are to accomplish economic and social goals to achieve financial prosperity. The study determined the impact of monetary policy tools on bank’s Credit Risk, which was previously unexplored. The analytical and econometrical design was adopted in this study. Descriptive statistics, correlation matrix, CD test, and DK regression were employed to determine the impact of monetary policy instruments on the bank’s Credit Risk. Multivariate statistical techniques were used to evaluate balanced panel data from 22 banks currently operating in Pakistan cover the span of 2009-2021. Banks were declared cross-sectionally dependent. ROE was positively associated with MG, ROA was negatively linked with INF in the Correlation Matrix. The overall research explored that PR and MG had a positive impact on ROE and ROA, but SLR showed an inverse impact on Credit Risk. This research used a large number of banks as a novel component in Pakistan’s context and filled a gap in the country’s banking literature. The paper will assist the government, managers of the banking industry, monetarists, stakeholders, investors, academicians, and researchers. This study could be extremely helpful to regulators in formulating favorable policy rates that fulfill Pakistan’s economic targets.

Role of Monetary Policy in Asset Price Inflation: A Comparative Study of Developed and Developing Economies

This study examined the relationship between monetary policy and asset price inflation in developed and developing economies, focusing on Pakistan. Using data from 2010-2024, the research employed multivariate GARCH and causality models to analyze the impact of various monetary policy tools on stock market indices and real estate prices. The findings revealed significant differences in economic policy's transmission mechanisms and effectiveness in influencing asset prices between developed and developing economies. In Pakistan, interest rate changes were found to have a more pronounced effect on stock market volatility than real estate prices. The study also highlighted the challenges developing economies face in implementing effective monetary policies to manage asset price inflation without compromising economic growth. This research is particularly important as it provides crucial insights for policymakers in developing economies like Pakistan, where the interplay between monetary policy and asset prices can have significant implications for financial stability and economic growth. By identifying the asymmetric effects of monetary policy and the role of policy uncertainty, this study contributes to developing more effective and targeted policy interventions in emerging markets.

Exploring the Correlation Between Monetary Policy and Food Inflation in Zambia

his relationship isolating food inflation from overall inflation to provide better policy implications that can enhance welfare for the Zambian populace. The Autoregressive Distributed Lag Model and the Error Correction Model were employed for the short run and long run analysis respectively. The findings postulate that there exists a significant relationship between monetary policy and food inflation. The monetary policy rate and the growth in the broad money have a destabilising relationship with food inflation. The depreciation in the domestic currency to foreign currency increase food inflation in the long run. Whereas the exchange rate channel plays a role of greater significance amongst the studied monetary policy tools. Inflation targeting, although significant, adds inflationary pressure of domestic food inflation, highlighting the need for stern policies that can individually factor in food inflation.

Measuring the effects of unconventional monetary policy tools under adaptive learning

We compare the economic effects of forward guidance and quantitative easing utilizing the four-equation New Keynesian model of Sims et al. (2023) with agents forming expectations via an adaptive learning rule. The results indicate forward guidance can have a greater influence on macroeconomic variables compared to quantitative easing. Adaptive learning agents estimate a higher effect of forward guidance on the economy leading to a greater impact on expectations, and thus, contemporaneous inflation. However, the performance gap between forward guidance and quantitative easing can change. If quantitative easing includes anticipated shocks, more households finance consumption through long-term borrowing, and the central bank provides a greater percentage of liquidity in the long-term borrowing market, the performance of quantitative easing can increase, and at times, outperform forward guidance.

THE IMPACT OF ALTERNATIVE MONETARY POLICY INSTRUMENTS ON ELECTRONIC PAYMENT CARDS (2017-2023)

The current study aimed to show the extent of the impact of independent variables on alternative monetary policy tools in electronic payment cards, as the problem of the study was whether the alternative monetary policy tools of the Central Bank of Iraq contribute to enhancing dealing with electronic payment cards, as the variables were analyzed financially for the period (2017-2023 )annually and then using the statistical program SPSS V 26 to test hypotheses according to the standard multiple linear regression model that was suitable for this study. The study showed a set of conclusions, including a statistically significant impact relationship of alternative monetary policy instruments in electronic payment cards. The study recommended promoting alternative monetary policy tools to achieve significant economic benefits by investing in infrastructure, enhancing awareness, and improving regulatory frameworks.