rss_2.0Journal of Central Banking Theory and Practice FeedSciendo RSS Feed for Journal of Central Banking Theory and Practice of Central Banking Theory and Practice Feed Impact of Energy on Climate and Economic Stability: Forecast for Serbia<abstract> <title style='display:none'>Abstract</title> <p>In the conditions of modern business environment of energy companies, studies of their impact on environmental protection are becoming increasingly important. The growing concern at the macro level of the resulting climate change due to energy production is justified. The ecological component in the business of energy entities is becoming a priority for the sustainable development of energy, and therefore must be thoroughly examined. The focus of this paper is to determine the impact of energy on climate change through the emission of Greenhouse Gases on the example of the Republic of Serbia. The paper also examines the long-term interdependence between key economic and energy indicators at the national level. The IPAT/Kaya identity was used for research purposes and three alternative scenarios of energy development in Serbia until year 2050 were developed. The obtained results point to different possibilities for the development of energy and its impact on climate. The importance of promoting renewable energy sources for environmental protection and overall economic stability is also pointed out through proposed alternative scenarios. Significant results were obtained for the predicted level of energy intensity for the observed period, suggesting how the development of energy in Serbia could affect economic stability until 2050.</p> </abstract>ARTICLEtrue Options for CBDC<abstract> <title style='display:none'>Abstract</title> <p>This paper provides an overview of the distributed ledger technology (DLT) options available to central banks for issuing central bank digital currency (CBDC). We discuss the main requirements that a DLT solution must fulfill and analyze the various structures for implementation offered by DLT — public, permissioned and private — and the implications that each has for the central bank and the existing financial system. While a CBDC built on an open, permissionless system would provide the full functionality offered by DLT, it is also far more disruptive to the existing financial system and consequently requires more new infrastructure on the part of the central bank.</p> </abstract>ARTICLEtrue Financial Markets Allow the Independence of Central Banks?<abstract> <title style='display:none'>Abstract</title> <p>The research work presented below addresses the possible concern of central bank independence through the development and application of econometric models. The complexity of the modelling has allowed a step further in corroborating that financial independence is not only linked to the appointments and pressures of the states regarding their economic policy but also the role that financial markets play by acting as a force that dictates and contaminates decisions of central banks. In this sense, the paper proposes a theoretical basis for recommendations on the application of the new monetary policy in a more complex environment, both due to the pandemic that was sweeping the world and the bulky debt that countries are carrying. The paper concludes with a series of measures and suggestions that could be addressed by monetary policymakers given the necessary but not easy normalization of monetary policy required at the global level.</p> </abstract>ARTICLEtrue Bank Digital Currency Adoption Challenges, Solutions, and a Sentiment Analysis<abstract> <title style='display:none'>Abstract</title> <p>We identify some factors limiting CBDC adoption and some of the possible solutions. We also assess the media sentiment about central bank digital currencies in general as well as about locally issued CBDCs. We find that there is a high correlation between the negative media sentiment about CBDCs in general and locally issued CBDCs. We also find that the negative media sentiment about the eNaira, DCash and Sand Dollar was caused by the existing negative media sentiment about CBDCs in general. However, a positive media sentiment about the eNaira, DCash and Sand Dollar was not caused by the existing positive media sentiment about CBDC in general.</p> </abstract>ARTICLEtrue National Bank: Is the Recent Loss a Threat to Monetary Policy? A Research Note<abstract> <title style='display:none'>Abstract</title> <p>The Swiss National Bank (SNB) has announced it will refrain from profit distribution in 2022 owing to the accumulation of a huge financial loss. In this paper we examine key determinants of the SNB’s loss and shed light on its implications to monetary policy pursuit. In particular, we show that different accounting principles yield different results concerning the equity position of a central bank’s balance sheet, yet not affecting the ability to run monetary policy.</p> </abstract>ARTICLEtrue Fragility in Developing Countries: An Analysis in the Context of Monetary Policy and Central Bank Independence<abstract> <title style='display:none'>Abstract</title> <p>This study aims to examine the effects of monetary policies implemented by developed countries and central bank independence of developing countries on the financial fragility of developing countries. According to the findings, it was seen that the contractionary monetary policies implemented by the central banks of developed countries increase the financial fragility for both groups of countries, as do the change of central bank governors. However, the change in governors strengthens positive effects of contractionary monetary policies on the financial fragility.</p> </abstract>ARTICLEtrue Refinement of the Relationship Between Central Bank Independence, Inflation, and Income Inequality in Developing Countries<abstract> <title style='display:none'>Abstract</title> <p>This paper analyzes the impact on income inequality of a set of variables usually considered in the growth literature as potential growth determinants. There is evidence to suggest that unemployment and inflation are positively associated with income inequality; except for countries with central bank independence where a negative association exists between inflation and income inequality. The empirical evidence shows that income inequality increases when unemployment increases.</p> </abstract>ARTICLEtrue Policy Press Releases of 24 Inflation Targeting Central Banks – A Comparison of their Key Features and Complexity<abstract> <title style='display:none'>Abstract</title> <p>This paper describes the process of constructing a dataset of available online press releases related to monetary policy decisions published by central banks that have been pursuing a form of inflation targeting. A total of 3,807 documents were considered, as the review encompasses 24 central banks over the past 30 years. To prepare the dataset for text-mining analysis, a cleaning procedure has been performed, which is also presented in detail. The next step was to look at the readability of the documents in order to detect any patterns in its changes. We find that while there is a significant variation between central banks, there is no clear time trend in the readability of the monetary policy press releases, i.e. some central banks tend to have easier-to-read press releases than others, and this does not change with time. In turn, there is a weak indication that following the Global Financial Crisis outbreak and the European Sovereign Debt Crisis apogee, as well as at the time of withdrawing unconventional measures introduced in response to those two emergencies, press releases of advanced economy inflation targeters got temporarily harder-to-read. Overall, this paper can be viewed as a first attempt towards assessing qualitatively central banks’ transparency, with respect to a flagship communication tool of inflation targeters, namely their monetary policy press releases.</p> </abstract>ARTICLEtrue Policy Between Stability and Growth<abstract> <title style='display:none'>Abstract</title> <p>The global financial crisis and the coronavirus pandemic were marked by expansionary policies of key central banks in an attempt to stop the recession. The degree of expansiveness of monetary policy was unprecedented. As a result of expansionary policies, global inflation has been present since 2021. The change in the macroeconomic environment has led to a turnaround in monetary policy pursuits and a rapid rise in reference interest rates. The FED reacted much faster than the ECB and that is why inflation was lower in the USA compared to the euro area. All announcements for 2023 point to the continuation of contractionary policies.</p> <p>The subject of the paper’s analysis is the monetary policy of key central banks, as well as expectations for the next period. The paper raises the question of whether central banks have gone from one extreme of overly expansionary monetary policy to the other extreme of overly contractionary monetary policy and whether such policies carry the risk of reoccurrence of recession. The paper also contains recommendations for improving existing monetary policy regimes, as well as for creating a completely new monetary policy regime which will be based on two nominal anchors.</p> </abstract>ARTICLEtrue the Banking Sector of Bosnia and Herzegovina: An Analysis of Financial Indicators through the MEREC and MARCOS Methods<abstract> <title style='display:none'>Abstract</title> <p>The banking sector assumes a pivotal role in the economic development of nations. The assessment of financial indicators pertaining to banks holds fundamental importance in the evaluation of bank stability and sustainability. This research employs the MEREC (Method based on the Removal Effects of Criteria) and MARCOS (Measurement of Alternatives and Ranking according to COmpromise Solution) methodologies to delve deeper into the financial landscape of the banking sector in Bosnia and Herzegovina (BiH). Specifically, the objective is to rank banks according to their financial indicators, utilizing financial data from the year 2022. The MEREC method is applied to gauge the significance of financial indicators and ascertain their respective weights, while the MARCOS method is employed to rank banks within BiH based on their financial indicators. The examination of financial indicators within the BiH banking sector, facilitated by the MEREC and MARCOS methodologies, yields a more comprehensive understanding of the sector’s present condition. Limitations of this research, which primarily stem from its reliance on available financial data and predefined methodologies, lies within limited consideration for external factors. To provide a broader contextual perspective, the inclusion of additional financial indicators and comparative analyses with banking sectors of other nations would be imperative. The findings of this research reveal that Raiffeisen Bank exhibits the most favourable financial indicators and demonstrates the highest level of efficiency within this context. Consequently, this research offers insights into identifying exemplary banks that can serve as models for enhancing the performance of others.</p> </abstract>ARTICLEtrue New Era of Capital Regulation Complexity<abstract><title style='display:none'>Abstract</title> <p>The paper describes the mechanism of overlapping leverage ratio requirement and macroprudential capital buffers and associated implications for the resilience of the banking sector. It examines to what extent capital buffers can be usable to absorb losses in the case of the Czech banking sector and what impact this may have on the lending capacity of the real economy. The non-usability portion of capital buffers in the Czech banking sector amounts to CZK 27 billion (i.e. 24% of the combined capital buffer). The lending potential of the capital buffer decreases by CZK 630 billion to CZK 1.6 trillion due to overlaps under otherwise equal conditions. The results indicate that the leverage ratio requirement may prevent the capital buffers from being fully effective and can reduce created macroprudential space.</p> </abstract>ARTICLEtrue Scales Based Analysis of the Effects of COVID-19 Related Economic Support on the Stock Markets in Emerging Markets<abstract><title style='display:none'>Abstract</title> <p>The main purpose of this study is to investigate the causal response of the stock market returns to COVID-19 related economic support in 19 emerging countries by using the Maximal Overlap Discrete Wavelet Transform (MODWT) and Fourier Toda-Yamamoto Causality Test (FTYCT). With the help of MODWT, we identify the instant, short-term, mid-term and long-term reactions of stock market returns and COVID-19 related economic support to each other. Implementing FTYCT, we determine the existence of the causal relationships running from COVID-19 related economic support to stock returns. We obtain two major results. First, the COVID-19 related economic support have significant effects on stock market returns in the short-, medium-, and long-term, except in China. Second, the results of the causality tests vary across countries based on the different time scales. Some emerging markets show an immediate reaction to the Economic Support, while most stock market reactions occur over the medium- and long-term. Since economic support will created unintended effects on stock market returns, the way that these support policies are implemented should be reconsidered. Also, their effectiveness should be evaluated carefully. </p> </abstract>ARTICLEtrue Relationship Between Bank Concentration and Interest Rates<abstract><title style='display:none'>Abstract</title> <p>The aim of this paper was to analyse the relationship between market concentration and market interest rate. Taking into thought the relationship between the level of concentration within a market and the level of competition, it can be deduced that an increment in concentration results in a decrease in competition. In order to test the above mentioned relationship, the authors used a panel dataset covering the period 2010Q1-2019Q4. The set includes quarterly data of all banks that operated in the Republic of Serbia. First of all, a correlation analysis was applied to determine whether there is a quantitative agreement between interest rates and concentration measures, and also a regression analysis i.e., econometric evaluation of panel regression models. In order to test the hypothesis, a total of 12 regression equations were applied. Results indicate that that the concentration indicators have a statistically significant and negative impact on the overall active interest rate in only two regression models, which is inadequate to support the hypothesis that there exists a systematic influence of concentration in the banking industry on interest rates. As a conclusion, the regression analysis imposes that the variations of the total loan interest rate can be explained to the greatest extent by the systematic and robust influences of the key policy rate of the NBS and the interannual inflation rate for the given quarter, as well as by the robust tendency of a linear decline over time.</p> </abstract>ARTICLEtrue Lasts Longer Than Life: How can Central Banks Quantify their Reputational Risk?<abstract><title style='display:none'>Abstract</title> <p>It takes multiple decades of commitment and credibility to create repute but only a few seconds to tarnish it, as the instances of misinformation, disinformation and malinformation galore. In light of this, Central banks, as delicate and sensitive public institutions, are significantly vulnerable to such reputation risk due to their mandate for policy decisions and implementation. Thus, this study aims to formulate a barometer that quantifies the reputation score of central banks. The Central Bank Reputation (CBR) score is derived based on the respondents’ responses to a questionnaire that includes twelve attributes and twenty-eight indicators, which is administered among the eight set of audiences. The reputation score ranges from −100 to +100, that indicates the reputation of the Central Bank at a point of time. The deviation in reputation score between two points of time thus measures the reputational risk. However, the study suggests applying other qualitative analysis tools in complement with this quantitative barometer, to come up with the robust assessment.</p> </abstract>ARTICLEtrue Sustainable Economic Growth in Sub-Saharan African Countries Using the Tool of Monetary Policy Effectiveness<abstract><title style='display:none'>Abstract</title> <p>The issue of achieving and sustaining a nation’s economic growth is an issue that is of concern to many nations of the world, especially the sub-Saharan African (SSA) nations. This was in line with the United Nations Sustainable Development Goal (SDG) 8 of Economic Growth. This study, therefore, examines how monetary policy tools can help the SSA governments achieve the SDG 8 goal and also sustain it. Relevant secondary data on sustained economic growth (GDPPC) (dependent variable) and interest rate, exchange rate, money supply, and inflation rate (independent variable) were gathered from the annual report of the Central Banks of the 48 SSA nations. The panel data year covers the period from 2016 to 2022. The unit root test confirms the variables to have a level integration order. The Hausman test suggests the use of fixed effect regression. The fixed effect regression shows that for the 48 SSA nations, interest rate, inflation rate, and money supply were positively significant in impacting GDPPC while exchange rate was negatively significant in impacting GDPPC. The study, therefore, recommends that import promotion, for example, should be avoided because it raises the exchange rate and lowers the value of currencies of the SSA nations.</p> </abstract>ARTICLEtrue Bank Independence: The Case of North African Central Banks<abstract><title style='display:none'>Abstract</title> <p>The independence of Central Banks is still considered to be a credibility factor in ensuring price stability. Thus, many central banks in transition countries have undergone a change in their statutes in order to achieve greater independence from governments. In this vein, within a decade, North African Central Banks have put in place a new institutional framework for their monetary policy. In this article, we will attempt to assess and measure the legal (de jure) and real (de facto) independence of these Central Banks (Morocco, Algeria, Libya, Tunisia, Egypt). </p> </abstract>ARTICLEtrue Effect of Monetary Policy on Income Inequality: Empirical Evidence from Asian and African Developing Economies<abstract><title style='display:none'>Abstract</title> <p>Inequality is a challenging issue for all developing countries across the globe. Evaluating the role of monetary policy in mitigating inequality is imperative for researchers and policy makers. The central objective of the present study is to empirically evaluate the impact of monetary policy on income inequality for ten Asian and African developing economies from 1990–2020. The methods of pooled mean group (PMG)/panel autoregressive distributed lag (ARDL), and fully modified least square (FMOLS) are implemented. The empirical results indicate that money supply has negative, and inflation has a positive and significant influence on income inequality. It has also been found that GDP per capita income and inward foreign direct investment (FDI) have a negative impact on inequality. The findings of the present study recommend that money supply, per capita income, and inward FDI should be enhanced, while inflation must be controlled using coordinated fiscal and monetary policies.</p> </abstract>ARTICLEtrue Interest Rates for Improving Income<abstract><title style='display:none'>Abstract</title> <p>This paper illustrates a case where an increase of the interest rates improves the economic activity and reduces income inequality. This theoretical exercise deals with a simple model of disequilibrium with accountant identities of budget constraints. In addition, and following previous models, the effect of the COVID-19 shock is considered, by reflecting asymmetric repercussions that increase income inequality. A simple empirical exercise confirms some of the previous results. The proposed explanation is that, for the euro area, this shock has affected more middle-income households such as the retailers harmed by the compulsory lockdown who have increased their debts.</p> </abstract>ARTICLEtrue VAR Analysis of the Effect of the Foreign Exchange Reserves on Macroeconomic Variables in Emerging Countries: The Case of BRIC Countries<abstract><title style='display:none'>Abstract</title> <p>This paper analyses the effects of the foreign exchange reserves accumulation on the key nominal and real macroeconomic variables (GDP, employment, prices and exchange rates) in BRIC countries (Brazil, Russia, India, China). VAR model was used to empirically examine the effect of accumulation of foreign exchange reserves on macroeconomic variables. The empirical results in this paper show that after the initial shock of foreign exchange reserves, the exchange rate appreciation occurs, which can be explained by the fact that a higher level of foreign exchange reserves gives investors and rating agencies a lower risk of the country, which can consequently lead to appreciation of the foreign exchange rate. In this way, the price reaction would be neutralized. Consequently, the growth of foreign exchange reserves leads to the growth of economic activity measured by GDP growth.</p> </abstract>ARTICLEtrue Changes in the U.S. Treasury Security Market During the Fourth Round of Quantitative Easing<abstract><title style='display:none'>Abstract</title> <p>The Covid-19 Pandemic and policy response rattled the US Treasury markets. Conventional US Treasuries, inflation adjusted US Treasuries, and the relationship between the two developed in ways such that ignoring changes in real interest rates yielded distorted inflation expectations estimates. Since the beginning of the pandemic, monetary policy kept nominal rates low and close to zero, but positive. Real rates, on the other hand, became increasingly negative. The relationship between the two market rates became negatively correlated, and distorted because of the fourth round of quantitative easing, along with the Fed preventing nominal yields from turning negative. Federal Reserve actions during the Covid-19 pandemic drove a larger wedge between nominal interest rates and real interest rates in the inflation adjusted market. </p> </abstract>ARTICLEtrue