Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data
Author: Margherita Bottero
Publisher: International Monetary Fund
Total Pages: 59
Release: 2019-02-28
Genre: Business & Economics
ISBN: 1498300855

We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data

Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data
Author: Margherita Bottero
Publisher: International Monetary Fund
Total Pages: 59
Release: 2019-02-28
Genre: Business & Economics
ISBN: 1498301797

We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Negative Interest Rate Policy (NIRP)

Negative Interest Rate Policy (NIRP)
Author: Andreas Jobst
Publisher: International Monetary Fund
Total Pages: 48
Release: 2016-08-10
Genre: Business & Economics
ISBN: 1475524471

More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Bank Leverage and Monetary Policy's Risk-Taking Channel

Bank Leverage and Monetary Policy's Risk-Taking Channel
Author: Mr.Giovanni Dell'Ariccia
Publisher: International Monetary Fund
Total Pages: 41
Release: 2013-06-06
Genre: Business & Economics
ISBN: 1484381130

We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.

Enabling Deep Negative Rates to Fight Recessions: A Guide

Enabling Deep Negative Rates to Fight Recessions: A Guide
Author: Ruchir Agarwal
Publisher: International Monetary Fund
Total Pages: 89
Release: 2019-04-29
Genre: Business & Economics
ISBN: 1484398777

The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.

Portfolio Rebalancing

Portfolio Rebalancing
Author: Edward E. Qian
Publisher: CRC Press
Total Pages: 263
Release: 2018-12-07
Genre: Mathematics
ISBN: 1498732453

The goal of Portfolio Rebalancing is to provide mathematical and empirical analysis of the effects of portfolio rebalancing on portfolio returns and risks. The mathematical analysis answers the question of when and why fixed-weight portfolios might outperform buy-and-hold portfolios based on volatilities and returns. The empirical analysis, aided by mathematical insights, will examine the effects of portfolio rebalancing in capital markets for asset allocation portfolios and portfolios of stocks, bonds, and commodities.

Global Financial Stability Report, April 2016

Global Financial Stability Report, April 2016
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
Total Pages: 135
Release: 2016-04-11
Genre: Business & Economics
ISBN: 1498363288

The current Global Financial Stability Report (April 2016) finds that global financial stability risks have risen since the last report in October 2015. The new report finds that the outlook has deteriorated in advanced economies because of heightened uncertainty and setbacks to growth and confidence, while declines in oil and commodity prices and slower growth have kept risks elevated in emerging markets. These developments have tightened financial conditions, reduced risk appetite, raised credit risks, and stymied balance sheet repair. A broad-based policy response is needed to secure financial stability. Advanced economies must deal with crisis legacy issues, emerging markets need to bolster their resilience to global headwinds, and the resilience of market liquidity should be enhanced. The report also examines financial spillovers from emerging market economies and finds that they have risen substantially. This implies that when assessing macro-financial conditions, policymakers may need to increasingly take into account economic developments in emerging market economies. Finally, the report assesses changes in the systemic importance of insurers, finding that across advanced economies the contribution of life insurers to systemic risk has increased in recent years. The results suggest that supervisors and regulators should take a more macroprudential approach to the sector.

A Primer on Managing Sovereign Debt-Portfolio Risks

A Primer on Managing Sovereign Debt-Portfolio Risks
Author: Thordur Jonasson
Publisher: International Monetary Fund
Total Pages: 133
Release: 2018-04-06
Genre: Business & Economics
ISBN: 1484350545

This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.

Managing the Sovereign-Bank Nexus

Managing the Sovereign-Bank Nexus
Author: Mr.Giovanni Dell'Ariccia
Publisher: International Monetary Fund
Total Pages: 54
Release: 2018-09-07
Genre: Business & Economics
ISBN: 1484359623

This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.