Special Guest Star Chair
Jianjun Miao / Dongling Su (Boston University)
We provide a dynamic new Keynesian model in which entrepreneurs face uninsurable idiosyncratic investment risk and credit constraints. Government bonds provide liquidity service and raise net worth. Multiple steady states with positive values of public debt can be supported for a given permanent deficit-to-output ratio. The steady-state interest rates are less than economic growth and public debt contains a bubble component. We analyze the determinacy regions of policy parameter space and find that a large set of monetary and fiscal policy parameters can achieve debt and inflation stability given persistent fiscal deficits.
Jane Binner (University of Birmingham) / Luis Molinas (Central Bank of Paraguay)
This paper contributes to the literature as the first work of its kind to examine the role and importance of Divisia monetary aggregates and concomitant user cost price indices as superior monetary policy forecasting tools in a negative interest rate environment. We compare the performance of Divisia monetary aggregates with traditional simple-sum aggregates in several theoretical models and in a Bayesian VAR to forecast the exchange rates between the euro, the dollar and yuan renminbi at various horizons using quarterly data. We evaluate their performance against that of a random-walk using two criteria: Root Mean Square Error ratios and the Diebold-Mariano statistic. We nd that, under a free floating exchange regime, superior Divisia monetary aggregates outperform their simple sum counterparts and the benchmark random walk in negative interest rate environment and non-negative interest rate environments consistently.
In this paper, we investigate the response of global banks to the payment of interest-on-excess-reserves (IOER). We find that foreign bank affiliates receive less funding from their parent banks, and send more funds to their headquarters, when their home Central Bank remunerates excess reserves. We exploit different organizational forms and IOER eligibility for identification in the U.S. and find that the establishment of an excess deposit facility at the home country causes a 10- percentage point decline on the U.S. credit provided by foreign bank branches. We also control for demand-side factors in a loan-level data in which borrowers have multiple lending relationships. We find that within a banking organization, the credit supply response is stronger in branches that are smaller, have less profitable lending opportunities, and rely on parent bank financing. The results suggest that the type of monetary policy framework matters, and that safe asset, when remunerated, can crowd out lending to the real economy.
Special Guest Star Chair
Timothy Watson (Australian National University) / Juha Tervala (University of Helsinki)
We simulate a small open economy Two Agent New Keynesian (TANK) model featuring `learning by doing' in production whereby changes in employment generate hysteresis in productivity and output. Credit constraints and hysteresis amplify the efficacy of fiscal stimulus in a small open economy with a floating exchange rate and inflation-targeting central bank such that output multipliers can exceed unity; welfare multipliers can be positive; and the degree of hysteresis, output and employment multipliers match empirical evidence well. Fiscal stimulus helps reverse output hysteresis, and price-level targeting provides superior macroeconomic stabilisation compared to other simple monetary rules combined with fiscal stimulus.
Pauline Avril (University of Orleans - LEO) / Grégory Levieuge (Banque de France) / Camelia Turcu (University of Orleans - LEO)
We empirically investigate the impact of natural disasters on the external finance premium (EFP), conditional on the stringency of macroprudential regulation. The intensity of natural disasters is measured through an original set of geophysical indicators for a sample of 88 countries over the period 1996-2016. Using local projections, we show that, following storms, the EFP significantly drops (rises) when macroprudential regulation is stringent (lax). This suggests that regulated financial systems could foster favorable financing conditions to replace destroyed capital with more productive capital. Macroprudential stringency seems less crucial in the case of floods, the predictability of which may prompt self-discipline.