The Central Bank Shift to Market Maker of Last Resort: The Unintended Consequences of Unconventional Monetary Policies

We analyze the transition of central banks from lenders to market makers of last resort. The adoption of unconventional monetary policies characterizes this transition. In their new role as market makers, central banks engage in the latter by extending and reinforcing interventions in other markets than the traditional bank reserves market. We then explain that the difference between the two roles is one of degree rather than kind. In both cases, the prevention of liquidity shortages is a primary concern. As conventional policies become inadequate, central banks resort to unconventional policies to escape a general liquidity shortage at the zero lower bound. However, these unconventional policies do not solve the structural problems in financial and real markets. Both conventional and unconventional monetary policies cause price distortions, in particular on asset markets. The policies of the market maker of last resort prevent necessary readjustments of cyclical divergences between real and financial markets.

Unconventional Monetary Policy through Open Market Operations: A Principal Component Analysis

This paper examines the unconventional monetary policies of the Bank of Japan from 2002 to 2019 with a focus on open market operations. We apply a principal component analysis to investigate the complexity of monetary policy. Our results identify four principal components that explain the variance of measures taken by the Bank of Japan and its operation of various facilities: asset purchase measures including Japanese Government Bonds (JGBs), Exchange-Traded Funds (ETFs), and Japanese Real Estate Investment Trusts (J-REITs), and three different liquidity supply measures. Complexity differs substantially among different governorships of Fukui, Shirakawa (most complex), and Kuroda. We derive some conclusions from the increased complexity with implications for the economy.

New Bundesbank chief likely to be less hawkish

Significance Weidmann decided to quit early as his efforts to oppose ultra-loose monetary policies were continuously resisted in the ECB. Unlike his predecessors, Nagel does not appear to possess strongly held convictions regarding monetary policy, suggesting he will be more pragmatic in relations with the ECB. Impacts Nagel will make digital modernisation a key objective during his time as Bundesbank president. Nagel’s support for stronger German connections with Chinese financial markets may weaken amid political tension. A strong economic recovery in 2022 would embolden those in the ECB governing council supporting the phasing out of asset-buying programmes.

The interdependence of Fiscal and Monetary Policies in an Emerging economy

This article's main goal is to evaluate the degree of fiscal dominance in Uruguay in 1999-2019 to improve the understanding of economic policy for theoretical reasons and applied needs related to good practices and accountability. Two strategies are followed: one, to quantify the fraction of fiscal expenditures that are financed by monetary liabilities and, the other one, to analyze the effects of fiscal deficit on the price level and inflation because inflationary financing may prevent the central bank from reaching its inflation target. Both situations may subordinate the monetary policy to the fiscal policy, signaling fiscal dominance. In addition, through the analysis performed to assess the degree of fiscal dominance, it is possible to detect the main determining factors of the Uruguayan price level (inflation) formation during the last two decades. So far, preliminary results suggest that inflation is not exclusively a monetary phenomenon and point to some inflationary financing with a mild degree of fiscal dominance.

Stock Market Responses to Monetary and Fiscal Policies

This study analyzes the short-run and long-run effects of interaction between fiscal and monetary policies on stock market performance in four emerging Asian economies, which are China, India, Indonesia, and Malaysia, by using ARDL model. The study covers the period of 2003:Q1-2020:Q1. The findings from this study show monetary and fiscal policies play an important role in determining stock market returns. Also, the results theoretically support Richardian neutrality hypothesis for China and Indonesia, Keynesian positive effect hypothesis for India, and classical crowding out effect hypothesis for Malaysia, and interest channel of monetary transmission mechanism only for China.

Policies for Promotion of Malaysian SMEs Go Global in the Digital Economy

The main purpose of this study is to seek industrial players' inputs on fiscal and monetary policies necessary to enhance SME export performance. The authors use survey data from 215 small and medium enterprises having export markets. They report the most essential governmental export support policies from the perspective of the industry players. The study revealed that accessing to financing is the top request to the government. Other policy recommendations are related to market access, human capital development, tax regimes, infrastructure and technology adoption, legal and regulatory environment, and monetary policies. This study gives implications for Malaysia External Trade Development Corporation (MATRADE) policymakers and export-oriented small and medium enterprises (SMEs). The study contributes to the Malaysian SMEs in relation to inputs to the government to improve their export performance especially using e-commerce.

Public debt management and the interaction between fiscal and monetary policies

PurposeThis paper aims to investigate the existing relations between the management of public bonds on the dynamics of debt, term structure of interest rates and economic cycle, through a dynamic stochastic general equilibrium model (DSGE), which was estimated through Bayesian inference techniques using data from Brazil.Design/methodology/approachThe model developed was used to investigate the effects of the public debt average maturity management when the economy faces a monetary policy shock. For this, three management scenarios are evaluated, including Brazilian securities average term.FindingsContrary to what might be inferred from DSGE models that limited the analysis of the debt term by imposing only one-period bonds, a contractionary monetary policy shock does not necessarily cause public debt to increase significantly. Debt term structure plays a crucial role in this result since the government does not need to roll the debt over at higher costs when the debt term profile is longer, reducing the debt service costs and then the impact on the overall debt.Originality/valueDespite the relevance of this theme and its implications for the dynamics of the economy, there is still a gap to be filled in the literature when using DSGE models, since most part of the work that used this methodology limited the analysis of the debt term by imposing that government issues only one-period bonds. This paper differs from the others insofar as it promotes an investigation focused on the role played by debt maturity management on the performance of the contractionary monetary policy. This approach can generate a better understanding of debt management policy and its interaction with fiscal and monetary policies.