scholarly journals Sentiment in Central Banks’ Financial Stability Reports*

2020 ◽  
Author(s):  
Ricardo Correa ◽  
Keshav Garud ◽  
Juan M Londono ◽  
Nathan Mislang
Keyword(s):  
Monetary Policy ◽  
Systemic Risk ◽  
Financial Stability ◽  
Asset Prices ◽  
Banking Sector ◽  
Banking Crises ◽  
Central Banks ◽  
Percentage Point Increase ◽  
Financial Cycle ◽  
Point Increase

Abstract We use the text of financial stability reports (FSRs) published by central banks to analyze the relation between the sentiment they convey and the financial cycle. We construct a dictionary tailored specifically to a financial stability context, which classifies words as positive or negative based on the sentiment they convey in FSRs. With this dictionary, we construct financial stability sentiment (FSS) indexes for thirty countries between 2005 and 2017. We find that central banks’ financial stability communications are mostly driven by developments in the banking sector. Moreover, the sentiment captured by the FSS index explains movements in financial cycle indicators related to credit, asset prices, systemic risk, and monetary policy rates. Finally, our results show that the sentiment in central banks’ communications is a useful predictor of banking crises—a one percentage point increase in FSS is followed by a twenty-nine percentage point increase in the probability of a crisis.

scholarly journals Are interest rate changes comoving with financial cycle?

2021 ◽  
Vol 71 (2) ◽  
pp. 259-277
Author(s):  
Paweł Smaga
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Stability ◽  
House Prices ◽  
Central Banks ◽  
Concordance Index ◽  
Expansion Phase ◽  
Financial Cycle ◽  
Widespread Phenomenon ◽  
Credit Cycle

AbstractWe explore to what extent official interest rate changes can potentially in a procyclical manner impact different financial cycle indicators (credit/GDP, debt service ratio, house prices and stock market indices). We test this on data covering 1995−2016 in 21 countries and the euro area using the Concordance index and Monetary policy procyclicality ratio. Results show that this was not a widespread phenomenon, but there was significant heterogenenity across countries. The procyclicality of interest rate changes was usually higher when financial cycle gaps were increasing and lower when they were decreasing. On average, central banks in several larger economies were running potentially less procyclical monetary policy than those in the smaller ones. The resulting propensity of conflicts between achieving price and financial stability by central banks was low, as only in 10% of the cases the objectives were conflicting (usually when inflation was below the target and the credit cycle was in an expansion phase).

Macroprudential Policy Instruments of Central Banks

2012 ◽  
pp. 32-47
Author(s):  
S. Andryushin ◽  
V. Kuznetsova
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
Policy Instruments ◽  
Central Banks ◽  
Macroprudential Policy ◽  
Policy Studies ◽  
The Future ◽  
Financial Cycles

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

Central bank digital currency: the future of institutional changes in the banking sector

2021 ◽  
Vol 2021 (2) ◽  
pp. 26-48
Author(s):  
Volodymyr MISHCHENKO ◽  
◽  
Svitlana NAUMENKOVA ◽  
Svitlana MISHCHENKO ◽  
◽  
...  
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Banking Sector ◽  
Central Banks ◽  
Credit System ◽  
Bank Supervision ◽  
Bank Of China ◽  
Digital Currency ◽  
Financial Monitoring ◽  
The Impact

The purpose of the article is to reveal the essence and features of the introduction of digital currency of central banks and their impact on the conditions of monetary policy, financial stability, as well as institutional transformations in the development of national banking systems. The study is based on an analysis of projects of issuance and use of digital currencies of the ECB and central banks of leading countries, as well as the results of pilot projects of the National Bank of China on the use of the digital yuan and NBU on the e-hryvnia circulation. It is proved that digital currency of the central bank should be considered as a new dematerialized form of national currency in addition to cash and non-cash forms. Particular attention is paid to the study of the impact of the use of digital currency by central banks on the main parameters of economic policy. The main directions of potential influence of digital currency use on transformation of mechanisms of realization of monetary, budgetary and tax, macroprudential policy, maintenance of financial stability, activization of action of channels of the monetary transmission mechanism, and also on reforming of system of the state financial monitoring and bank supervision are substantiated. It is determined that one of the consequences of the use of digital currency will be the ability to ensure full control over all monetary transactions, which will help reduce the shadow economy and corruption. Structural and logical schemes of centralized and decentralized models of issuance and circulation of digital currency of central bank have been developed, directions of changes in the structure and functions of commercial and central banks, as well as in the structure of the financial and credit system in general have been substantiated.

scholarly journals Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment

2018 ◽  
Vol 18 (3) ◽  
pp. 195-224 ◽  
Author(s):  
Martin Hodula ◽  
Lukáš Pfeifer
Keyword(s):  
Monetary Policy ◽  
Systemic Risk ◽  
Financial Stability ◽  
House Prices ◽  
Empirical Support ◽  
Financial Sector ◽  
Economic Policies ◽  
Real Economy ◽  
Monetary Policies ◽  
Fiscal And Monetary Policy

Abstract In this paper, we shed some light on the mutual interplay of economic policy and the financial stability objective. We contribute to the intense discussion regarding the influence of fiscal and monetary policy measures on the real economy and the financial sector. We apply a factor-augmented vector autoregression model to Czech macroeconomic data and model the policy interactions in a data-rich environment. Our findings can be summarized in three main points: First, loose economic policies (especially monetary policy) may translate into a more stable financial sector, albeit only in the short term. In the medium term, an expansion-focused mix of monetary and fiscal policy may contribute to systemic risk accumulation, by substantially increasing credit dynamics and house prices. Second, we find that fiscal and monetary policy impact the financial sector in differential magnitudes and time horizons. And third, we confirm that systemic risk materialization might cause significant output losses and deterioration of public finances, trigger deflationary pressures, and increase the debt service ratio. Overall, our findings provide some empirical support for countercyclical fiscal and monetary policies.

scholarly journals Regular Econometric Model of Taylor for Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 123
Author(s):  
Ergys Misha
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Central Banks ◽  
Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

scholarly journals CENTRAL BANK DIGITAL CURRENCY: ECONOMIC AND LEGAL CHARACTERISTICS

2019 ◽  
pp. 94-100
Author(s):  
T.S. Hudima ◽  
V.A. Ustymenko
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Banking System ◽  
Legal Framework ◽  
Central Banks ◽  
Digital Currency ◽  
Business Entities ◽  
The Right ◽  
Article 5

The article is devoted to identifying the peculiarities of the central bank digital currency (CBDC), explaining their impact on the monetary policy of the state, and identifying the prospects for the transformation of domestic banking legislation in connection with the implementation of the CBDC. It is noted that the scope of competence of the Central Bank and the legal basis for the issuance of the CBDC will depend on the economic and legal features of the digital currency, the degree of its impact on the monetary policy, the financial stability of the country’s economy and so on. In the process of forming the appropriate legal field and defining the conceptual apparatus in the sphere of emission and circulation of the CBDC, the peculiarities of the use of the latter in economic transactions and the specific functions not inherent in ordinary means of payment should be taken. СBDC initiatives will help: 1) progressively narrow the banking system at the level of the Central Banks (such as the Chicago Plan) by allowing individuals and businesses to deposit directly into the accounts of the Central Banks; 2) increasing confidence of economic entities and individuals in the financial system; 3) strengthening the financial stability of the economy (both domestically and globally). Granting business entities or individuals the right to store digital money directly with the Central Bank can give rise to two main directions of influence on monetary policy: first, to strengthen its transmission mechanism; secondly, lead to banks being disrupted. This may lead to some legal issues regarding (1) the NBU’s area of competence; (2) the constitutional foundations of the legal economic order (Article 5 of the ECU). In particular, it cannot be ruled out that centralization of the production, servicing, and management of the СBDC turnover may violate the principles of competition in business activities, prevent abuse of monopoly position in the market, etc. Keywords: monetary policy, central bank digital currency, financial stability, competence, legal framework, economic operations, issue.

scholarly journals Negative Interest Rate Risk. Atavism or Normalization of Central Banks’ Monetary Policy

2019 ◽  
Vol 3 (342) ◽  
pp. 89-116
Author(s):  
Irena Pyka ◽  
Aleksandra Nocoń
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Interest Rate Risk ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Negative Interest Rate Policy

In the face of the global financial crisis, central banks have used unconventional monetary policy instruments. Firstly, they implemented the interest rate policy, lowering base interest rates to a very low (almost zero) level. However, in the following years they did not undertake normalizing activities. The macroeconomic environment required further initiatives. For the first time in history, central banks have adopted Negative Interest Rate Policy (NIRP). The main aim of the study is to explore the risk accompanying the negative interest rate policy, aiming at identifying channels and consequences of its impact on the economy. The study verifies the research hypothesis stating that the risk of negative interest rates, so far unrecognized in Theory of Interest Rate, is a consequence of low effectiveness of monetary policy normalization and may adopt systemic nature, by influencing – through different channels – the financial stability and growth dynamics of the modern world economy.

scholarly journals Economic Insecurity as Systemic Risk

2015 ◽  
Vol 62 (s1) ◽  
pp. 29-36
Author(s):  
Ion Pârţachi ◽  
Eugeniu Gârlă
Keyword(s):  
Systemic Risk ◽  
Economic Activity ◽  
Financial Stability ◽  
Banking Sector ◽  
Activity Index ◽  
Analytical Description ◽  
Economic Security ◽  
Economic Insecurity ◽  
Corporate Sector ◽  
New Approach

Abstract Difficulties related to the problem of evaluating the economic security / insecurity, including the threshold of economic security / insecurity, namely the impossibility of giving an analytical description of a criterion entirely made up of a set of indicators describing the degree of economic security / insecurity, makes more and more researchers, including the authors, to seek indirect ways of finding solutions, for example considering systemic risk., as a measure of evaluation. Thus, starting from a new approach, and given the specific components of systemic risk to financial stability: the banking sector, corporate sector, public sector, volume of credits, economic activity index the threshold vector of economic security / insecurity can be developed. The study shows that systemic risk can be used to measure the threshold of economic security /insecurity.

FINANCIAL STABILITY AND MONETARY POLICY REACTION FUNCTION FOR SOUTH ASIAN COUNTRIES: AN ECONOMETRIC APPROACH

2019 ◽  
pp. 1-30
Author(s):  
SAMIA NASREEN ◽  
SOFIA ANWAR
Keyword(s):  
Monetary Policy ◽  
South Asian ◽  
Financial Stability ◽  
Central Banks ◽  
Series Data ◽  
Reaction Function ◽  
Asian Countries ◽  
Policy Objective ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

This study empirically investigates a monetary policy reaction function for South Asian economies by incorporating financial stability as an additional policy objective in the central bank’s loss function. Empirical results are estimated by applying auto-regressive distributed lag (ARDL) approach to cointegration and vector autoregressive (VAR) approach using time-series data of five South Asian countries, namely, Pakistan, India, Bangladesh, Nepal and Sri Lanka. Estimated results indicate that monetary policy significantly reacts to the level of financial stability in all countries. The result further suggests that central banks would tighten monetary policy if output gap widens and exchange rate depreciate. In addition, central banks of Pakistan and India do not respond significantly to inflation gap.

scholarly journals Comparison of effects of expansionary monetary policy in the Czech Republic and Slovakia

2020 ◽  
Vol 74 ◽  
pp. 04006
Author(s):  
Boris Fisera ◽  
Jana Kotlebova
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Banking Sector ◽  
Open Economies ◽  
Balance Sheet ◽  
Bank Lending ◽  
Central Banks ◽  
Monetary Policies ◽  
The Czech Republic ◽  
Economic Developments

The ongoing process of globalization has affected the way the monetary policy is conducted – and this is especially the case of small open economies, where the economic developments are heavily affected by the developments abroad. Therefore, the aim of this paper is to investigate the effects of unconventional monetary policy in two very open economies – Slovakia and the Czech Republic in the post-crisis era – the two rather similar very open economies. We assess the effects of their monetary policies by estimating their impact on the banking sector in both countries. We employ two cointegrating estimators – DOLS and FMOLS, so that we can assess the dynamics of the relationship between the developments of main balance sheet items of the respective central banks and the aggregate bank lending to various sectors of the economy. We do find evidence that unconventional policies of both central banks did lift bank lending – with the effect being stronger in Slovakia and for the QE policies. In both countries, the effect was more pronounced for the bank lending to household sector – specifically on housing related loans. Finally, we do not find evidence that the increasing openness of these two already very open economies affected the transmission of monetary policies into the banking sector.

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