47 research outputs found
The impact of size, composition and duration of the central bank balance sheet on inflation expectations and market prices
Fundamental uncertainty and unconventional monetary policy: an info-gap approach. Bruegel Working Paper Issue 1 / 2017
This paper applies the info-gap approach to the unconventional
monetary policy of the Eurosystem and so takes into account the
fundamental uncertainty on inflation shocks and the transmission
mechanism. The outcomes show that a more demanding monetary
strategy, in terms of lower tolerance for output and inflation gaps,
entails less robustness against uncertainty, particularly if financial
variables are taken into account. Augmenting the Taylor rule with a
financial variable leads to a smaller loss of robustness than taking into
account the effect of financial imbalances on the economy. However,
in some situations, the augmented model is more robust than the
baseline model. A conclusion from our framework is that including
financial imbalances in the monetary policy objective does not
necessarily increase policy robustness, and may even decrease it
What do we Know About the Effects of Macroprudential Policy, De Nederlandsche Bank Working
Abstract The literature on the effectiveness of macroprudential policy tools is still in its infancy and has so far provided only limited guidance for policy decisions. In recent years, however, increasing efforts have been made to fill this gap. Progress has been made in embedding macroprudential policy in theoretical models. There is increasing empirical work on the effect of some macroprudential tools on a range of target variables, such as quantities and prices of credit, asset prices, and on the amplitude of the financial cycle and financial stability. In this paper we review recent progress in theoretical and empirical research on the effectiveness of macroprudential instruments. Keyword
Applying complexity theory to interest rates:Evidence of critical transitions in the euro area
We apply complexity theory to financial markets to show that excess liquidity created by the Eurosystem has led to critical transitions in the configuration of interest rates. Complexity indicators turn out to be useful signals of tipping points and subsequent regime shifts in interest rates. We find that the critical transitions are related to the increase of excess liquidity in the euro area. These insights can help central banks to strike the right balance between the intention to support the financial system by injecting liquidity and potential unintended side-effects on market functioning. Zusammenfassung Wir wenden KomplexitĂ€tstheorie auf FinanzmĂ€rkte an, um zu zeigen, dass die vom Eurosystem geschaffene ĂberschussliquiditĂ€t zu kritischen ĂbergĂ€ngen bei der Konfiguration der ZinssĂ€tze gefĂŒhrt hat. KomplexitĂ€tsindikatoren erweisen sich als nĂŒtzliche Signale von Kipppunkten und nachfolgenden Regimeverschiebungen bei ZinssĂ€tzen. Wir stellen fest, dass die kritischen ĂbergĂ€nge mit dem Anstieg der ĂberschussliquiditĂ€t im Euroraum zusammenhĂ€ngen. Diese Einblicke können Zentralbanken helfen, das richtige Gleichgewicht zwischen der Absicht, das Finanzsystem mit zusĂ€tzlicher LiquiditĂ€t zu unterstĂŒtzen, und möglichen unbeabsichtigten Nebenwirkungen auf das Marktgeschehen zu finden
Liquidity Stress-Tester: A Model for Stress-testing Banks' Liquidity Risk
This article presents a stress-testing model for liquidity risks of banks. It takes into account the first- and second-round (feedback) effects of shocks, induced by reactions of heterogeneous banks, and reputation effects. The impact on liquidity buffers and the probability of a liquidity shortfall is simulated by a Monte Carlo approach. An application to Dutch banks illustrates that the second-round effects in specific scenarios could have more impact than the first-round effects and hit all types of banks, indicative of systemic risk. This lends support policy initiatives to enhance banks' liquidity buffers and liquidity risk management, which could also contribute to prevent financial stability risks. (JEL Codes: C15, E44, G21, G32) Copyright , Oxford University Press.
Indicator and boundaries of financial stability
This paper presents an information variable for financial stability consisting of a composite index and its related critical boundaries. It is an extension of a Financial Conditions Index with information on financial institutions. The indicator is bounded, on one side, by the instability boundary which depends on the solvency buffers of the institutions and the stress level on financial markets. On the other side, the imbalances boundary signals when extreme imbalances accumulate. This concept is applied to the Netherlands and six OECD countries which experienced a financial crisis.financial stability; indicator; crisis
Liquidity Stress-Tester: A macro model for stress-testing banks' liquidity risk
This paper presents a macro stress-testing model for market and funding liquidity risks of banks, which have been main drivers of the recent financial crisis. The model takes into account the first and second round (feedback) effects of shocks, induced by behavioural reactions of heterogeneous banks, and idiosyncratic reputation effects. The impact on liquidity risk is simulated by a Monte Carlo approach. This generates distributions of liquidity buffers for each scenario round, including the probability of a liquidity shortfall. An application to Dutch banks illustrates that the second round effects have more impact than the first round effects and hit all types of banks, indicative of systemic risk. This lends support policy initiatives to enhance banks' liquidity buffers and liquidity risk management, which could also contribute to prevent financial stability risks.banking; financial stability; stress-tests; liquidity risk
Liquidity Stress-Tester: Do Basel III and Unconventional Monetary Policy Work?
This paper presents a macro stress-testing model for liquidity risks of banks, incorporating the proposed Basel III liquidity regulation, unconventional monetary policy and credit supply effects. First and second round (feedback) effects of shocks are simulated by a Monte Carlo approach. Banks react according to the Basel III standards, endogenising liquidity risk. The model shows how banks' reactions interact with extended refinancing operations and asset purchases by the central bank. The results indicate that Basel III limits liquidity tail risk, in particular if it leads to a higher quality of liquid asset holdings. The flip side of increased bond holdings is that monetary policy conducted through asset purchases gets more influence on banks relative to refinancing operations.banking; financial stability; stress-tests; liquidity risk
Statistical evidence on the mean reversion of interest rates
Based on two hundred years of annual data of the Netherlands , Germany , US and Japan we analyse the mean reversion of long-term interest rates, by unit root tests over rolling windows and taking into account structural breaks and regime changes. While short-term rates and the yield curve tend to revert to their long-term average value, long-term rates can persistently deviate from it. At the outside, we only find weak statistical evidence for mean reversion of long-term rates. Outcomes of smooth transition autoregressive ( STAR ) models for long-term interest rates, indicate that the speed of mean reversion is regime dependent, being stronger when rates are far from their equilibrium value.interest rates; statistical methods; time-series models