Central Bank Economic Research: Output, Demand, Productivity, and Relevance

The economic research of 30 central banks in OECD and Latin America countries from 2000 to 2007 is evaluated in this study. An international comparison based on four indexes that measure central bank research output, demand, productivity and relevance is included. From this view, the European Central Bank, the United States Federal Reserve Bank-Board of Governors- and the Bank of Canada showed the best results. The Central Bank of Colombia achieves an important position among the central banks selected for the study and holds that position in most of the indexes. Three aspects of research were examined in depth: i) focus of the research agenda, ii) the way research is organized, and iii) strategies for its development for six leading central banks in the sample, based on the results of the measure, including the Central Bank of Colombia. The study shows a tendency of central banks to develop studies with academic institutions. This practice allows them to broad the range of their analysis, by having an outside perspective, while getting expertise with recent techniques and theories for better economic analysis, which contributes to policy design.Central Banks, economic research. Classification JEL: E59, A11.

Reversiones repentinas de rendimientos e intermediación financiera en mercados emergentes

Los bancos en las economías de mercados emergentes dependen de los préstamos interbancarios transfronterizos para financiar empresas en el sector real. Usando datos a nivel de préstamos transfronterizos entre bancos, datos a nivel de préstamos domésticos de bancos a firmas y datos a nivel de firma, este documento muestra que la reversión repentina de rendimientos observadas durante el Fed Taper Tantrum de 2013 generó una contracción sustancial del crédito interbancario transfronterizo en los mercados emergentes que resultó en una significativa reducción de la oferta doméstica de crédito corporativo y en mayores tasas de los préstamos. Los resultados muestran que las firmas con una alta concentración de crédito otorgado por los bancos más expuestos en el mercado de préstamos interbancarios transfronterizos exhibieron bajo crédito bancario y efectos reales sustanciales, incluyendo una disminución de las importaciones y exportaciones. Los resultados indican además que los préstamos transfronterizos intra-grupo y el fondeo interbancario doméstico contribuyen a suavizar los efectos de las reversiones repentinas de rendimientos sobre la intermediación financiera. En general, estos resultados son consistentes con la noción de que la exposición de los bancos en los mercados internacionales de crédito contribuye a la transmisión de las condiciones financieras globales en la economía.Banks in emerging market economies rely on cross-border interbank lending to financing firms in the real sector. By matching cross-border bank-to-bank loan level data with domestic bank-to-firm loan level data, and firm-level data, this paper shows that sudden yield reversal observed during the 2013 Fed taper tantrum resulted in a substantial contraction of cross-border interbank lending in emerging markets that significantly reduced the supply of domestic corporate credit and increased the corporate loan rates. Results show that firms with an ex-ante high concentration of credit granted by exposed banks in the cross-border interbank market exhibited low bank credit and substantial real effects, including a decline in imports and exports. The results further indicate that cross-border intra-group lending and domestic unsecured interbank funding contribute to smoothing the effects of sudden yield reversals on the financial intermediation. Overall, the results are consistent with the notion that banks’ exposition in international credit markets contributes to global financial conditions’ transmission to the economy.Enfoque Los bancos de las economías emergentes dependen del mercado de préstamos interbancarios transfronterizos para intermediar crédito con el sector real. Este fondeo se incrementó de manera importante durante el ciclo expansivo de la política monetaria de los Estados Unidos entre 2010-2013. Sin embargo, los anuncios de normalización de la política monetaria en Estados Unidos entre mayo y diciembre de 2013 (i.e., Fed taper tantrum) generaron reversiones repentinas de rendimientos que condujeron a una menor liquidez en los mercados internacionales de crédito y al aumento de los costos de fondeo en las economías emergentes (Eichengreen and Gupta, 2015; Bouwman et al., 2015; Avdjiev and Takáts, 2019). En este documento utilizamos datos del mercado de préstamos interbancarios transfronterizos combinados con datos de préstamos corporativos (banco-firma) y datos a nivel de firma (estados financieros y comercio internacional) para estudiar los efectos de la reversión repentina de rendimientos durante el Fed taper tantrum sobre la intermediación financiera y la actividad económica en Colombia. Contribución Este estudio identifica el efecto directo del Fed taper tantrum sobre la intermediación financiera y la actividad real en una economía emergente. El trabajo extiende la evidencia reciente que se ha enfocado en los efectos financieros y macroeconómicos de este choque de liquidez internacional (Aizenman et al., 2016; Acharya and Vij, 2021; Chari et al., 2021). Se emplea el enfoque de Khwaja y Mian (2008) para identificar los cambios en la oferta de crédito internacional y doméstica durante el Fed taper tantrum. La muestra incluye el crédito transfronterizo entre la banca internacional y los bancos en Colombia que se combina con el crédito otorgado por los bancos domésticos hacia las firmas del sector real que reportan sus estados financieros al regulador, y que además no emiten bonos ni acciones, ni cuentan con acceso al crédito internacional. Esta base se complementa con información de exportaciones e importaciones a nivel de firma, lo cual permite identificar el efecto directo del Fed taper tantrum sobre la intermediación financiera y la actividad real en Colombia. Resultados Encontramos que durante el Fed taper tantrum la banca internacional redujo la oferta de crédito transfronterizo a los bancos colombianos en un 11% y que la contracción fue del 19% para aquellos bancos que ex-ante tenían una mayor exposición en el segmento de corto plazo (3 a 12 meses). Estos bancos con mayor exposición redujeron en 20% y 4% la oferta de crédito corporativo en moneda extranjera y moneda local, respectivamente, frente a los bancos menos expuestos. Asimismo, los bancos expuestos incrementaron las tasas de interés de los préstamos corporativos en moneda extranjera y moneda local en 12% y 7,5%, respectivamente. Las firmas con una alta concentración de crédito otorgado por los bancos expuestos exhibieron una contracción más pronunciada en la oferta de crédito y un mayor deterioro en su desempeño (menores activos, pasivos, ventas e inversiones), y una disminución sustancial en las exportaciones e importaciones, en comparación con firmas menos expuestas a estos bancos. El crédito intra-grupo y el fondeo doméstico en el mercado interbancario no colateralizado permitieron suavizar los efectos del choque de liquidez sobre la oferta de crédito. Los resultados sugieren que el grado de exposición de los bancos domésticos en los mercados de crédito internacional condiciona su oferta de crédito y afecta la actividad real. En este contexto, las políticas macroprudenciales destinadas a reducir la exposición de los bancos en los mercados internacionales pueden contribuir a salvaguardar la estabilidad financiera y a atenuar los efectos económicos de las reversiones repentinas de rendimientos en las economías emergentes

Staff, Functions, and Staff Costs at Central Banks: An International Comparison with a Labor-demand Model

During the period 2000-2004 central banks sustained a generalized reduction in their staff, which was accompanied, in most cases, with significant increases in staff costs. This could obey to an enhanced interest of central banks in focusing on their core functions. In fact, central banks have changed the ways they perform their operative functions (e.g. currency operations, payment systems operation, printing notes, etc.) through different strategies aimed at gathering the participation of third parties. These strategies differ according to the relationship that central banks have with the financial sector and the government, as well as to their historical tradition and modernization trend. To explain the effect of these changes on the staff, we estimated a short-term labor demand function for 66 central banks using a panel data model with random effects. Results indicate that central banks’ labor demand is strongly determined by the country’s population, economic development level and changes in operative functions, as well as by staff costs. In addition, we found a low employment-wage elasticity suggesting the presence of a flexible budgetary constrain in central banks.Central Banking, Labor Demand, Modernization, Functions, Staff Costs, Panel Data, Random Effects. Classification JEL: E50; J23; J30; C33

BANKNOTE PRINTING AT MODERN CENTRAL BANKING: TRENDS, COSTS, AND EFFICIENCY

This paper examines trends in banknote printing during the period 2000-2005 for a crosssection of 56 central banks. Because of the high increase in the demand for currency in recent years, central banks have implemented new strategies to increase efficiency in the production of banknotes. Some of them, involve the private sector by means of different modalities (e.g. joint ventures, subsidiaries or purchase of banknotes from specialized companies), and the integration of banknote printing and cash processing in a single complex (e.g. Portugal and Colombia). A cost function using a panel data model with random effects was estimated. It was identified that the denomination structure, the size of banknotes, and the production method used by central banks have a significant impact on production costs. Government printing was found to be the most costly method, while private-sector involvement in the process substantially reduces production costs. Using a non-parametric efficient frontier model, it was found that most central banks have increased its technical efficiency during the period, especially in central banks where the privatesector has involved. Computing a Malmquist index through distance functions it was identified that central banks have showed a moderate increase in its productivity, primarily due to increases in efficiency and, in a lower proportion to technical change. In most of the cases, a positive change in efficiency is mainly the result of higher scale efficiency. This could obey to high increase in demand for currency.Central Banks, Banknote Printing, Efficiency Frontier, Cost Function, Panel Data, Malmquist Index. Classification JEL: E50; C33; C23; C43.

Identities For Homogeneous Utility Functions

Using a homogeneous and continuous utility function that represents a household's preferences, this paper proves explicit identities between most of the different objects that arise from the utility maximization and the expenditure minimization problems. The paper also outlines the homogeneity properties of each object. Finally, we show explicit algebraic ways to go from the indirect utility function to the expenditure function and from the Marshallian demand to the Hicksian demand and vice versa, without the need of any other function, thus simplifying the integrability problem avoiding the use of differential equations.Identities, homogeneous utility functions and household theory.

The Transmission of Non-Banking Liquidity Shocks to the Banking Sector

The increasingly interdependence between non-banking financial institution (NBFIs) and thebanking sector conditions the provision of liquidity in the financial markets. This paperevaluates how the market stress associated to the bankruptcy of one of the most interconnectedNBFIs in an emerging market economy affected the availability of unsecured interbank funding.We show that the market stress conducted to a reallocation of deposits from money marketmutual funds (MMMF) within the banking sector that affected the liquidity provision in theunsecured interbank market. Banks with ex-ante high concentration of deposits from theMMMF sector significantly increased loan spreads and reduced the supply of unsecured fundsin the interbank market. Lending relationships and central bank liquidity contributed topartially alleviate the liquidity shock. Overall, we identify that the concentration of uninsureddeposits from MMMFs increases the transmission of non-banking liquidity shocks to thebanking sector

Too-connected-to-fail Institutions and Payments System’s Stability: Assessing Challenges for Financial Authorities

The most recent episode of market turmoil exposed the limitations resulting from the traditional focus on too-big-to-fail institutions within an increasingly systemic-crisis-prone financial system, and encouraged the appearance of the too-connected-to-fail (TCTF) concept. The TCTF concept conveniently broadens the base of potential destabilizing institutions beyond the traditional banking-focused approach to systemic risk, but requires methodologies capable of coping with complex, cross-dependent, context-dependent and non-linear systems. After comprehensively introducing the rise of the TCTF concept, this paper presents a robust, parsimonious and powerful approach to identifying and assessing systemic risk within payments systems, and proposes some analytical routes for assessing financial authorities’ challenges. Banco de la Republica’s approach is based on a convenient mixture of network topology basics for identifying central institutions, and payments systems simulation techniques for quantifying the potential consequences of central institutions failing within Colombian large-value payments systems. Unlike econometrics or network topology alone, results consist of a rich set of quantitative outcomes that capture the complexity, cross-dependency, context-dependency and non-linearity of payments systems, but conveniently disaggregated and dollar-denominated. These outcomes and the proposed analysis provide practical information for enhanced policy and decision-making, where the ability to measure each institution’s contribution to systemic risk may assist financial authorities in their task to achieve payments system’s stability.Payments systems, too-connected-to-fail, too-big-to-fail, systemic risk, network topology, simulation, central bank liquidity. Classification JEL:E58, E44, C63, G21, D85.

Heterogeneous effects of risk-taking on bank efficiency : a stochastic frontier model with random coefficients

We estimate a stochastic frontier model with random inefficiency parameters, which allows us not only to identify the role of bank risk-taking on driving cost and profit inefficiency, but also to recognize heterogeneous effects of risk exposure on banks with different characteristics. We account for an integral group of risk exposure covariates including credit, liquidity, capital and market risk, as well as bank-specific characteristics of size and affiliation. The model is estimated for the Colombian banking sector during the period 2002-2012. Results suggest that risk-taking drives inefficiency and its omission leads to over (under) estimate cost (profit) efficiency. Risk-taking is also found to have different effects on efficiency of banks with different size and affiliation, and those involved in mergers and acquisitions. In particular, greater exposures to credit and market risk are found to be key profit efficiency drivers.Likewise, lower liquidity risk and capital risk lead to higher efficiency in both costs and profits. Large, foreign and merged banks benefit more when assuming credit risk, while small, domestic and non-merged banks institutions take advantage of assuming higher market riskJorge E. Galán acknowledges financial support from the Spanish Ministry of Education and Science, research project ECO2012-340

Biocorrosion of Carbon Steel under Controlled Laboratory Conditions

In the Iberian Pyritic Belt (SW Europe), Acid Mine Drainage (AMD) is the consequence of the interaction of physical-chemical and biological factors, where aerobic Fe and/or S oxidizing chemolithotrophic and anaerobic sulfate reducing bacteria play an essential role. As a result, the polluted waters are highly acidic (pH 2–3) and contain numerous dissolved or suspended metals, which gives them a powerful corrosive action on constructions related to mining activities with high economic losses. To verify the role of bacteria in the corrosion of carbon steel, a common material in buildings exposed to corrosion in acidic waters, several experiments have been carried out under controlled conditions using carbon steel bars and acidic water containing bacteria consortia from an AMD river of the Iberian Pyritic Belt. In all the experiments carried out, a remarkable oxidation of supplemented iron was observed in the presence of bacteria. Using carbon steel as the sole iron source, we observed a slight corrosion of the bars, but when culture media was supplemented with elemental sulfur, steel bars was severely damaged. Since the bacteria inoculum come from the surface water, well oxygenated, nutrient-poor river, the obtained results are discussed based on facultative metabolism of acidophilic chemolithotrophic bacteria.This research was funded by Ministry of Science and Innovation (Spain), grant number PID2021-123130OBI0