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 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 Management in Central Banks<abstract> <title style='display:none'>Abstract</title> <p>In this ever-changing environment of technological innovations central banks are strongly committed to fulfilling their key objectives of preserving monetary and financial stability, but also make efforts to adapt to new market requirements. On the path of technological transformation of financial systems, central banks face many challenges stemming from, inter alia, new less regulated and decentralized financial innovative services, cyberattacks, and endangered cyber security. Central banks need strong project management to successfully address these processes and that should be done in line with the highest international standards.</p> <p>The paper analyses the implementation of project management in central banks according to the international standards. The authors present possible division of roles and responsibilities in the project organization structure in central banks based on these international standards. The standardized integrated project management activities and associated practices are described and presented in the context of project management in central banks. The authors conclude that the application of international standards is crucial for successful project management in central banks in order to ensure that the projects are implemented on time and within the envisaged scope and budget, thereby ensuring high quality results, efficient deployment of human resources, benefits realization and value creation for the organization.</p> </abstract>ARTICLEtrue Central Bank Transparency Deter the Exchange Rate Volatility? New Evidence from Asian Emerging Markets<abstract> <title style='display:none'>Abstract</title> <p>Exchange rate volatility has emerged as a significant challenge for Asian emerging markets since the adoption of the liberalization process. This study examines the influence of central bank transparency on exchange rate volatility using a sample of ten important Asian emerging markets. The study uses a fixed effect regression model covering the Asian financial crisis, global financial crisis, banking crisis, and taper tantrum episodes. Results show that an increase in central bank transparency has a stabilizing effect on exchange rate volatility, and this effect remains even after controlling for various internal and external factors. The uncertainty of US monetary policy increases exchange rate volatility, while US economic policy uncertainty contributes only during the global financial crisis. Interestingly, central bank transparency buffers the effects of the global financial crisis, indicating that it plays a facilitating role in maintaining financial stability. Studies that examine the role of central bank transparency in curbing exchange rate volatility, which is a crucial issue in these markets, are rare in emerging markets’ context. This research offers interesting findings by using a variety of robustness checks.</p> </abstract>ARTICLEtrue Credit Related Macroprudential Instruments Be Effective in Reducing the Correlation Between Economic and Credit Growth? Cross-Country Evidence<abstract> <title style='display:none'>Abstract</title> <p>The study investigates effectiveness of selected credit related macro prudential instruments in reducing the correlation between economic and credit growth in European emerging countries between 2000 and 2017. Two GMM (Generalized Method of Moments) estimators are used to empirically investigate the validity of tightening policy actions. Although greater attention to MMPs is found in both European regions the study finds some differences as well. On the level of full sample, the findings confirm our expectation about effectiveness of the selected credit related macroprudential instruments in reducing credit growth.</p> <p>More specifically, the European transition countries proved to be more successful in using macroprudential tools in curbing credit growth than European post-transition countries. It is confirmed that all three employed credit related macroprudential instruments play a key role in curbing credit growth in the expansive stage of business cycle in the European transition countries. It means that a lower economic growth leads to lower effects of credit related macroprudential instruments on credit growth. However, empirical evidence from European post-transition countries shows mixed results followed by the lack of robustness of economic results, but with expected theoretical sign. In fact, introduction of CG limits and FC limits reduce the correlation between GDP growth and credit growth only in one step S-GMM estimator, while a variable of caps on debt-to-income ratio (DTI) not.</p> </abstract>ARTICLEtrue of the Contingent Claims Analysis in Detecting Banking Risks: Evidence from the Greek Bank Crisis<abstract> <title style='display:none'>Abstract</title> <p>In this paper we apply the Contingent Claims Analysis (CCA) to the banking sector in Greece with a particular focus on the years of the Greek debt crisis. Greece was selected primarily because its banking sector was hit hard due to the country’s government debt default and its large exposure to domestic loans. The results obtained on the SIB’s level and on the banking sector level gave us particular insight into the benefits of CCA for micro- and macroprudential policy reasons. The Distance-to-Distress (DtD) risk metric produced is particularly useful for detecting banks’ vulnerabilities and resilience before they are revealed in the market. Moreover, the reduced volatility of DtD time series makes it an ideal candidate for tool predictions purposes and ultimately for policy reasons.</p> </abstract>ARTICLEtrue for Cash and its Determinants - a Post-Crisis Approach<abstract> <title style='display:none'>Abstract</title> <p>The use of cashless payment instruments has been on an increase over many years now. At the same time, demand for cash has been on the rise as well and we can observe a particularly high level of growth demand for banknotes during crisis times. The increase in demand for cash known as the “banknote paradox” is a phenomenon observed in many economies. It results from the existence of two streams of demand for cash - transactional and precautionary, and the differences in the directions of their changes from the point of view of the central bank and other entities involved in cash transactions, since it enables the optimization of cash supply management, which allows, on the one hand, to reduce the costs of cash processing and, on the other hand, to improve the effectiveness of monetary policy. This paper estimates the share of the transaction demand for cash with the aggregate demand. The strength and direction of the impact of selected macroeconomic and behavioural factors (uncertainty caused by the Global Financial Crisis and the Pandemic Crisis) on transaction and precautionary demand for cash were also assessed. A novel approach to the problem of demand for cash is based on considering the impact of macroeconomic shocks in the form of crises on the demand for cash.</p> </abstract>ARTICLEtrue the Effectiveness of Monetary Policy Depend on the Choice of Policy Instrument? Empirical Evidence from South Korea<abstract> <title style='display:none'>Abstract</title> <p>This study provides robust evidence on how the choice of the policy instrument for monetary policy influences its impact on economic activity. We study the case of South Korea for the period 1980-2017. We use FAVAR models that allow a comprehensive exploration of different areas of economic activity by overcoming limitations on a number of variables that can be included in the analysis in a traditional VAR model. Following the actual use of instruments, we test the effectiveness of monetary policy in two separate periods: 1980-1999, when the Bank of Korea mostly used M2 as the policy instrument; and then 2000-2017, when interest rate was the policy instrument. Our results show that monetary policy that uses interest rate as the policy instrument is markedly more effective in economic activity than M2. This is observable in the reaction from prices as well as variables that measure industrial production. In contrast, the impact of M2 mostly occurs in prices and it is short lived. We use robustness checks that switch the use of instrument for each subperiod and also test the use of each policy instrument for the entire period of analysis. The results hold, interest rates as policy instrument of monetary policy are more effective than M2.</p> </abstract>ARTICLEtrue the Issuance of CBDC Reduce the Likelihood of Banking Panic?<abstract> <title style='display:none'>Abstract</title> <p>This paper delves into the relationship between the issuance of Central Bank Digital Currencies (CBDC) and the likelihood of banking panic. The issuance of CBDC acts as a disturbing shock that incentivizes depositors to withdraw all/part of their deposits from the commercial banks, to swap it for CBDC which are offered by the central bank. We determine a variety of tools that central banks can use in order for the issuance of CBDC to act as a stabilizing factor of the banking system (by reducing the likelihood of banking panic).</p> </abstract>ARTICLEtrue which Factors Impact Interest Rates<abstract> <title style='display:none'>Abstract</title> <p>The Taylor (1993) rule for determining interest rates is generalized to account for three additional variables: The money supply, money velocity, and the unemployment rate. Thus, five parameters, i.e. weights assigned to the deviation in the inflation rate, the deviation in real GDP (Gross Domestic Product), the deviation in money supply, the deviation in the money velocity, and the deviation in unemployment rate, are introduced and estimated. The article explores and tests various combinations of the Taylor rule, the Quantity Equation (Friedman, 1970), and the Phillips (1958) curve. The monthly US January 1, 1959 to March 31, 2022 data are adopted to test the optimal parameter values. Estimating the parameters with the least squares method gives better results than the Taylor rule. The optimal parameter values involve a relatively high weight to the deviation in unemployment rate, and moderate weights are assigned to the deviation in the inflation rate, the deviation in real GDP, the deviation in money supply, and the deviation in the money velocity. The corresponding sum of squares decreases by 42.95% when compared with the Taylor rule.</p> </abstract>ARTICLEtrue Finance: Regulation and Instruments<abstract> <title style='display:none'>Abstract</title> <p>Green finance is the basis for the development of sustainable financing of environmental projects with the aim of respecting environmental and social aspects in making investment decisions. The development of green finance enables a green transition towards economic growth that will be sustainable in the long run because it is based on the principles of preserving the environment and reducing the risk of climate change. This creates a basis for preserving macroeconomic stability based on the development of new alternative sources of financing. The aim of this paper is to present green finance, with special reference to Serbia. The paper covers the regulation of green finance, but also the analysis of green finance instruments in terms of types and features and their development.</p> </abstract>ARTICLEtrue Credit Growth in the EMU Banking Sector Follow its Capital Adequacy?<abstract> <title style='display:none'>Abstract</title> <p>We put our hypothesis very straightforward, considering the euro area and the whole European Economic and Monetary Union (EMU) banking sector. The paper’s central hypothesis that capital adequacy of the EMU banking sector influenced credit growth and activities in the nonfinancial sector was confirmed; however, not entirely in all respects expected. We proved that, in general, there was a dependency between banks’ capital adequacy and loan growth in the euro area for the observed period Q1 1999 until Q1 2022; yet the correlation coefficient of 0.48 shows a middle positive relationship of variables. At the same time, more than 23% of loans’ variability might be explained by variability in capital adequacy. All significance tests proved our results valid.</p> <p>Nevertheless, we saw two very different and slightly controversial dynamics in loan growth and capital ratio during the observed period. Therefore, we were forced to separately continue with an analysis for both time frames: the period before the big financial and economic crisis (Q1 1999 - Q4 2008) and the period starting with the big financial and economic crisis (Q1 2009 - Q12022). The linear regression in the pre-crisis period was almost flat. In contrast, a simple linear regression during the crisis showed a relatively high negative correlation at around -0.6. Therefore, the sub-hypothesis that higher capital adequacy resulted in negative credit growth was supported for the crisis period. We believe that this paper offers the main originality and scientific contribution for this particular finding within the data time series deployment.</p> </abstract>ARTICLEtrue