monetary transmission through bank loans or bank liabilities interest in the transmission of monetary fluctuations to real output has dominated macroeconomics since at least the eighteenth century since then many observers have noted the tendency of a monetary expansion to be followed initially by an expansion of real output and later by an increase in prices while the reason for the long run price change is well understood understanding the short run impact of money on nominal output remains an active unresolved research topic most theoretical models explain the transmission of monetary fluctuations to real output as a consequence of sticky prices or expectations the stickiness is either due to informational imperfections or to contractual rigidities while the policy implications of the two types of stickiness differ both types of model predict a transitory response of real output to a shock in nominal money balances neither the informational imperfection nor the contractual rigidity story is completely compelling and both rely on the central role played by movements in real balances and perceived real interest rates yet for thirty five years following world war ii neither significant movements in the anticipated real rate nor large interest elasticities of spending were apparent despite this the empirical correlation of money and output fluctuations has been found in most time periods and countries consequently the need for alternative explanations of monetary transmission or a credible reverse causation story remains strong

the great intervention and massive money injection the japanese experience 2003 2004 abstract from the beginning of 2003 to the spring of 2004 japan s monetary authorities conducted large scale yen selling dollar buying operations in what taylor 2006 has labeled the great intervention this paper examines the relationship between this great intervention and the quantitative easing policy the bank of japan was pursuing at that time first we find that about 40 percent of the yen funds supplied to the market by yen selling interventions were not offset by the boj s monetary operations and remained in the market for a while this is in contrast with the preceding period when almost 100 percent were immediately offset second comparing interventions and other government payments the extent to which the funds were offset was much smaller in the case of interventions suggesting that the boj differentiated between and responded differently to interventions and other government payments these two findings indicate that it is likely that the boj intentionally did not sterilize yen selling interventions to achieve its policy target of maintaining the current account balances of commercial banks at the boj at a high level finally we find that an unsterilized intervention had a greater impact on the yen dollar rate than a sterilized one suggesting that it matters whether an intervention is sterilized or not even when the economy is in a liquidity trap

do bank characteristics influence the effect of monetary policy on bank risk abstract we analyze whether bank characteristics affect the impact of monetary policy on bank risk we find that the insulation effects produced by capital and liquidity were lower for banks operating in countries with particularly low interest rates

capital mobility for developing countries may not be so high abstract international capital flows to developing countries have taken on considerable policy importance in recent years there is disagreement however about whether financial capital mobility has become so high that developing countries have little ability to sterilize capital flows this paper reviews several popular methods of estimating the degree of capital mobility for developing countries and shows that they are subject to potentially important upward biases due to inappropriate assumptions concerning the roles of domestic inflation and sterilization corrections for these factors can cut estimates of capital mobility by one half or more

volatility spillovers across international swap markets the us japan and the uk abstract this paper examines volatility spillovers across the three major international swap markets namely the us japan and the uk we apply a multivariate var egarch model by incorporating the slope of term structure and corporate spread variables to capture the time varying nature of swap spread volatility across countries our empirical findings show that the changes in the swap spreads are significantly influenced by the slope of term structure variable in all three currencies we find that the us swap market has a major influence on the japanese and uk swap markets but not vice versa we also find that reciprocal spillovers exist between japanese and the uk swap markets in almost all cases the degree of volatility persistence is fairly strong and in many cases we find asymmetric volatility spillovers across maturity and country

are there differences in the effectiveness of quantitative easing at the zero lower bound in japan over time using a time varying parameter vector autoregression tvp var framework with a new set of sign restrictions we study the changing effectiveness of the bank of japan s quantitative easing policies over time we specifically analyse the so called zero interest rate policy from 1999 to 2000 the quantitative easing policy from 2001 to 2006 and most recently the so called abenomics strategy our results indicate important differences of the quantitative easing qe shocks on the japanese economy over time more specifically we find important time variation in the responses of core cpi and real gdp with regard to the different monetary policy episodes in japan we find somewhat more pronounced effects on core cpi during abenomics the responses of the price level are generally found to be stronger and more significant than those of real gdp this holds particularly for the abenomics period these results are mirrored by our variance decomposition analysis

federal home loan bank advances and commercial bank portfolio composition this paper considers the role of federal home loan bank fhlb advances in stabilizing their commercial bank members residential mortgage lending activities our theoretical model shows that using mortgage related membership criteria or requiring mortgage related collateral does not ensure that fhlb advances will be put to use for stabilizing members financing of housing using panel vector autoregression var techniques we estimate recent dynamic responses of u s bank portfolios to fhlb advance shocks bank lending shocks and macroeconomic shocks our empirical findings suggest that fhlb advances are just as likely to fund other types of bank credit as to fund single family mortgages

convergence of real capital market interest rates evidence from inflation indexed bonds this paper investigates the convergence of long term ex ante real interest rates rirs obtained from canadian french uk and u s inflation indexed government bonds in contrast to previous research our evidence suggests full convergence in the long run and hence capital market integration for the same sample period global convergence is rejected for rirs measured in conventional terms from these results we conclude that previous tests of the long run real interest rate parity might have suffered from weak measurement of real capital market interest rates

competition in banking and the lending channel evidence from bank level data in asia and latin america abstract this paper examines how banking competition affects the transmission of monetary policy through the bank lending channel we apply a two step estimation procedure using bank level panel data for commercial banks in 10 asian and 10 latin american countries during the period from 1996 to 2006 in the first step we measure the degree of banking competition by applying the methodology proposed by panzar and rosse 1987 in the second step we estimate a loan growth equation where the explanatory variables include the panzar rosse measure of banking competition the estimation results provide consistent evidence that increased competition in the banking sector weakens the transmission of monetary policy through the bank lending channel this is especially true for banks in latin american countries and banks of small size low liquidity and low capitalization we also discuss the policy implications of the main findings of this paper

the risk taking channel of monetary policy in the u s evidence from corporate loan data to study the presence of a risk taking channel in the u s we build a comprehensive data set from the syndicated corporate loan market and measure monetary policy using different measures most notably taylor 1993 and romer and romer 2004 residuals we identify a negative relation between monetary policy rates and bank risk taking especially in the run up to the 2007 financial crisis however this effect is purely supply side driven only when using taylor residuals and an ex ante measure of bank risk taking our results highlight the sensitivity of the potency of the risk taking channel to the measures of monetary policy innovations

are real interest rates equal across countries an empirical investigation of international parity conditions this paper conducts empirical tests of the equality of real interest rates across countries the empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative ppp or the unbiasedness of forward rate forecasts and ex ante relative ppp the evidence suggests that it is worth studying open economy macroeconomic models which allow 1 domestic real rates to differ from world rates 2 time varying risk premiums in the forward market or 3 deviations from ex ante relative ppp the relationship of real interest rates across countries is of central importance to our understanding of open economy macroeconomics in some models where there is costless international arbitrage in goods and financial assets real interest rates for comparable securities should be equal across countries this has been a feature of much of the early research in the monetary approach to exchange rates e g frenkel 11 and bilson 2 on the other hand finance theory indicates that risk premia may well differ for comparable securities denominated in different currencies solnick 27 roll and solnick 26 stulz 28 fama and farber 7 hansen and hodrick 17 and dornbusch 6 and more recent theoretical models in the exchange rate literature such as dornbusch 5 frankel 10 and mussa 24 depend on real rates differing between countries in the short run the proposition that real rates are equal across countries is worth studying

effects of the bank of japan s current quantitative and qualitative easing abstract this paper examines how the bank of japan s current quantitative and qualitative easing affects the japanese economy by using a markov switching vector autoregression model on daily economic data during january 2012 august 2014 the results reveal that quantitative easing by expanding the monetary base significantly lowers short term interest rates and raises inflation rates in addition the lowered interest rates positively affect inflation rates qualitative easing through purchases of long term government bonds and exchange traded funds increases economic activity purchases of exchange traded funds stimulate the stock and foreign exchange markets in japan while purchases of japan real estate investment trusts do not have any effect

evolution of beliefs and the nash equilibrium of normal form games abstract the paper formulates a simple two person model of learning with pattern recognition and discusses its implications in particular it focuses on the asymptotic behavior of players beliefs when the game has a mixed strategy nash equilibrium journal of economics literatureclassification numbers c72 d83

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

the effectiveness of quantitative easing evidence from japan abstract this study contributes to current research on quantitative easing we provide a novel analysis of the quantitative easing effectiveness as an unconventional monetary policy tool in japan over the last two decades the paper advances current research on quantitative easing by exploring quantitative easing through the prism of the monetary transmission mechanism we examine the response of japanese regional banks to the quantitative easing operations conducted by the bank of japan from the early 2000s till 2015 the analysis is performed within the framework of the bank lending channel under the unconventional monetary policy strategies we find that small sized regional banks underline the significant positive effect of quantitative easing on gross domestic product and inflation that works through the securities holdings and leverage preferences monetary authorities should pay particular attention to policies for such banks and banks with a high level of non performing loans deposit growth after a quantitative easing shock is only present in large sized banks with low npls holdings

real interest rate equalization some empirical evidence from the three major world financial markets this article examines the linkage of real interest rates of the three major world financial markets usa japan and the uk with the use of cointegration methods unlike previous works the investigation uses a trivariate vector autoregressive var model in which a constant term in the common stochastic trends space is excluded based on data generated after the liberalization of japan s foreign exchange market at the end of 1980 1981 1 1998 12 the article finds some empirical evidence indicating that the extent of the departure from the long run real interest rate equalization rie is not very large although the null hypothesis of the long run rie is rejected in most cases

a non standard monetary policy shock the ecb s 3 year ltros and the shift in credit supply abstract we study the macroeconomic effects of the 3 year long term refinancing operations ltros introduced by the ecb in december 2011 with the aim of reducing the obstacles to credit supply through the mitigation of liquidity and funding risks in the euro area banking system therefore we interpret the measure as a credit supply shock which is identified both recursively and with sign restriction methods using the euro area bank lending survey bls the size of the shock due to the ltros is computed using both the april 2012 bls and the special ad hoc questions on the ltros conducted in february 2012 the counterfactual exercises suggest that the 3 year ltros lifted prospects for real gdp and loan provision to non financial corporations and increased goods prices over the next two to three years thereby avoiding a major credit crunch

who drives real interest rates around the pacific rim the usa or japan abstract this paper investigates the relative influence of us and japanese real interest rates in the determination of local pacific rim rates where influence is defined by the presence of common stochastic trends furthermore the degree to which long run real interest parity holds is examined the cointegration testing methodology of johansen 1988 is adopted for this analysis which allows for multiple cointegrating vectors the results indicate that hong kong malaysia and taiwan are linked with both the usa and japan in terms of cointegration and positive covariation while only singapore is solely linked with the usa on the other hand korea and perhaps indonesia and thailand appear to be more closely linked with japan real interest parity holds for only the following interest rate pairs usa singapore usa taiwan and japan taiwan

quantitative easing and related capital flows into brazil measuring its effects and transmission channels through a rigorous counterfactual evaluation abstract we show that unconventional monetary policy in the united states appears to influence capital inflows to brazil and through this channel its overall economic outlook and financial stability in particular quantitative easing leads to capital inflows exchange rate appreciation stock market price increases credit growth and expansion of domestic activity related to consumption such effects are significant when considering both parameter uncertainty and a new significance test for abnormal behavior according to a new channel identification method proposed in the paper capital inflow is the only domestic propagation channel that systematically accounts for the estimated effects across variables and samples results are robust across a wide range of policy counterfactuals regime break assumptions testing procedures and model specifications

conducting monetary policy at very low short term interest rates can monetary policy committees accustomed to describing their plans and actions in terms of the level of a short term nominal interest rate find effective means of conducting and communicating their policies when that rate is zero or close to zero the very low levels of interest rates in japan switzerland and the united states in recent years have stimulated much interesting research on this question and have led some central banks to make changes in their operating procedures and communications strategies in this paper we will give a brief overview of current thinking on the conduct of monetary policy when short term interest rates are very low or even zero monetary policy works for the most part by influencing the prices and yields of financial assets which in turn affect economic decisions and thus the evolution of the economy when the short term policy rate is at or near zero the conventional means of effecting monetary ease lowering the target for the policy rate is no longer feasible however it would be a mistake to think that monetary policy was impotent we discuss three strategies for stimulating the economy at an unchanged level of the policy rate these involve i providing assurance to investors that short rates will be kept lower in the future than they currently expect ii changing the relative supplies of securities in the marketplace by altering the composition of the central bank s balance sheet and iii increasing the size of the central bank s balance sheet beyond the level needed to set the short term policy rate at zero quantitative easing we also discuss the costs and benefits of very low interest rates an issue that bears on the question of whether the central bank should take the policy rate all the way to zero before undertaking alternative policies

the effectiveness of conventional and unconventional monetary policy evidence from a structural dynamic factor model for japan abstract i investigate the effectiveness of both conventional and unconventional japanese monetary policy measures targeting either the short term interest rate or the monetary base using a 1985 2014 data set covering 135 variables the analysis is based on a structural dynamic factor model an expansionary monetary policy shock identified via theoretically plausible sign restrictions is found to significantly increase real and nominal economic activity with regard to the policy instrument its effectiveness differs a shock that decreases the short term interest rate has a strong positive effect on output and a modest effect on prices a monetary policy shock that raises the monetary base has a positive but weak and rather transitory effect on output and a strong effect on goods and stock prices

the effectiveness of non standard monetary policy in addressing liquidity risk during the financial crisis the experiences of the federal reserve and the european central bank abstract a number of studies sought to measure the effects of non standard policy on bank funding markets this paper carries those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending by separately modeling loan supply and demand we determine how non standard central bank measures affected bank lending by reducing stress in bank funding markets our results suggest that non standard policy measures lowered bank funding volatility in the us and the euro area lower bank funding volatility in turn increased loan supply in both regions contributing to sustained lending activity

how does credit supply respond to monetary policy and bank minimum capital requirements abstract we use data on uk banks minimum capital requirements to study the interaction of monetary policy and capital requirement regulation uk banks were subject to both time varying capital requirements and changes in interest rate policy tightening of either capital requirements or monetary policy reduces the supply of lending lending by large banks reacts substantially to capital requirement changes but not to monetary policy changes lending by small banks reacts to both there is little evidence of interaction between these two policy instruments the differences in the responses of small and large banks identify important distributional consequences within the financial system of these two policy instruments finally our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macro prudential variation in capital requirements

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

foreign effects of higher u s interest rates abstract this paper analyzes the spillovers of higher u s interest rates on economic activity in a large panel of 50 advanced and emerging economies we allow the response of gdp in each country to vary according to its exchange rate regime trade openness and a vulnerability index that includes current account foreign reserves inflation and external debt we document large heterogeneity in the response of advanced and emerging economies to u s interest rate surprises in response to a u s monetary tightening gdp in foreign economies drops about as much as it does in the united states with a larger decline in emerging economies than in advanced economies in advanced economies trade openness with the united states and the exchange rate regime account for a large portion of the contraction in activity in emerging economies the responses do not depend on the exchange rate regime or trade openness but are larger when vulnerability is high

convergence of interest rates around the pacific rim this article applies the panel data unit root tests provided by im pesaran and shin discussion paper 1997 to examine the interest rate convergence of small open asian countries with major financial centres with monthly data from 1988 1 to 1997 6 it was found that the nominal interest rates of these countries converge to the us rates rather than to japan s this finding is consistent with the view that the monetary authorities of non japan asian economies pegged their exchange rates overwhelmingly to the dollar rather than the yen before the financial crisis of 1997

financial integration of east asian economies evidence from real interest parity in this article we investigate the financial linkages between the east asian economies with japan and the united states we test for long run real interest rate parity rip using an array of panel data techniques including recent techniques developed by breuer et al 2002 and carrion i silvestre et al 2005 this study offers two important results first the failure to account for structural breaks in the industrialized countries and asian emerging economies is likely to provide evidence of nonstationary series that are stationary second we found strong evidence that the parity condition holds in all the asian countries the failure of earlier studies to confirm mean reversion of real interest rate differential rid may reflect the choice of estimation testing procedure rather than any inherent deficiency in the rip

dynamic linkages among real interest rates in international capital markets abstract short run and long run dynamic linkages among weekly real interest rates for g 10 countries are examined using a variety of time series tests these tests give special attention to the time series properties of nominal interest rates ex ante expected rates of inflation and real interest rates term structure information is used to recover a theoretically consistent measure of ex ante expected inflation in sample and out of sample granger causality tests are also examined to evaluate lead lag relationships among real interest rates the results provide strong support for well integrated markets particularly in the long run the results imply leadership roles for the us in international asset markets