http://www.bis.org/list/wpapers/from_01012014/index.rss BIS Working Papers are written by economists from the Bank for International Settlements (BIS) and, occasionally, from central banks or academic institutions. 2014 en http://www.bis.org/publ/work478.htm Abstract of BIS Working Papers No 478 This paper reviews the role of long-term interest rates in international monetary transmission and related policy challenges in the wake of exceptionally easy US monetary policy. It employs a panel VAR model to examine the impact of a very low US term premium on relatively small open Asian economies. The results show that unconventional US monetary policy spills over to Asia mainly through ... Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates 2014-12-23T14:58:00Z This paper reviews the role of long-term interest rates in international monetary transmission and related policy challenges in the wake of exceptionally easy US monetary policy. It employs a panel VAR model to examine the impact of a very low US term premium on relatively small open Asian economies. The results show that unconventional US monetary policy spills over to Asia mainly through low domestic bond yields and rapid growth of domestic bank credit. Financial integration does not appear to reduce the control of national monetary authorities over short-term policy rates. However, it does compromise control over long-term rates that are key determinants of economic activity. In light of the results, the paper reviews potential policy options to deal with volatile term and risk premiums. Spillovers of US unconventional monetary policy to Asia: the role of long-term interest rates 2014-12-23T14:58:00Z BIS PDF version http://www.bis.org/publ/work478.pdf Ken Miyajima Miyajima Mr Senior Economist Madhusudan Mohanty Mohanty Mr Head of Emerging Markets Bank for International Settlements James Yetman Yetman Mr Senior Economist Bank for International Settlements Ken Miyajima, Madhusudan Mohanty and James Yetman December 2014 Bank for International Settlements: Working Papers 478 F42 E52 E43 http://www.bis.org/publ/work477.htm Abstract of BIS Working Papers No 477 Central banks of major advanced economies have maintained a very accommodative monetary policy stance in the last few years. However, concerns have surfaced that the transmission of low policy rates to lending rates has been weaker than in the past. Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? To answer this question, we first estimate ... Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? 2014-12-18T10:59:00Z Central banks of major advanced economies have maintained a very accommodative monetary policy stance in the last few years. However, concerns have surfaced that the transmission of low policy rates to lending rates has been weaker than in the past. Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? To answer this question, we first estimate ... Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? 2014-12-18T10:59:00Z BIS monetary policy global financial crisis cointegration lending rates PDF version http://www.bis.org/publ/work477.pdf Leonardo Gambacorta Gambacorta Dr Research Adviser Bank for International Settlements Anamaria Illes Illes Ms Research Analyst Bank for International Settlements Marco Jacopo Lombardi Lombardi Mr Senior Economist Bank for International Settlements Leonardo Gambacorta, Anamaria Illes and Marco Jacopo Lombardi December 2014 Bank for International Settlements: Working Papers 477 C32 E52 E43 http://www.bis.org/publ/work476.htm Abstract of BIS Working Papers No 476 Limited access to the formal financial sector is a common feature of the economic environment in many emerging market and developing economies. In this paper, we examine how the level of financial inclusion affects welfare-maximising monetary policy. Our theoretical framework is based on Galí, López-Salido and Vallés (2004). In this model, only financially included ... Financial inclusion and optimal monetary policy 2014-12-18T10:53:00Z Limited access to the formal financial sector is a common feature of the economic environment in many emerging market and developing economies. In this paper, we examine how the level of financial inclusion affects welfare-maximising monetary policy. Our theoretical framework is based on Galí, López-Salido and Vallés (2004). In this model, only financially included ... Financial inclusion and optimal monetary policy 2014-12-18T10:53:00Z BIS optimal monetary policy financial inclusion limited asset market participation PDF version http://www.bis.org/publ/work476.pdf Aaron Mehrotra Mehrotra Mr Senior Economist Bank for International Settlements James Yetman Yetman Mr Senior Economist Bank for International Settlements Aaron Mehrotra and James Yetman December 2014 Bank for International Settlements: Working Papers 476 G21 E52 O23 http://www.bis.org/publ/work475.htm Abstract of BIS Working Papers No 475 The SME sector is often hailed as an important engine of economic growth. But recent research suggests that young rather than small firms are the main contributors to employment growth. This paper shows that young firms are also key contributors to profit growth across advanced economies. It them examines the impact of financial constraints on ... SMEs, financial constraints and growth 2014-12-18T10:27:00Z The SME sector is often hailed as an important engine of economic growth. But recent research suggests that young rather than small firms are the main contributors to employment growth. This paper shows that young firms are also key contributors to profit growth across advanced economies. It them examines the impact of financial constraints on ... SMEs, financial constraints and growth 2014-12-18T10:27:00Z BIS economic growth financial constraints firm size SMEs firm age PDF version http://www.bis.org/publ/work475.pdf Ryan Banerjee Banerjee Mr Economist Bank for International Settlements Ryan Banerjee December 2014 Bank for International Settlements: Working Papers 475 O16 G30 E22 L16 http://www.bis.org/publ/work474.htm Abstract of BIS Working Papers No 474 In this paper we consider the role of exchange rate risk in influencing local currency sovereign bond yields in emerging market economies (EMEs). We explicitly account for exchange rate expectations and uncertainty around them, as measured by exchange rate volatility. The analysis points to an important influence of ... Exchange rate risk and local currency sovereign bond yields in emerging markets 2014-12-18T10:25:00Z In this paper we consider the role of exchange rate risk in influencing local currency sovereign bond yields in emerging market economies (EMEs). We explicitly account for exchange rate expectations and uncertainty around them, as measured by exchange rate volatility. The analysis points to an important influence of ... Exchange rate risk and local currency sovereign bond yields in emerging markets 2014-12-18T10:25:00Z BIS emerging markets local currency sovereign bond yields exchange rate risk PDF version http://www.bis.org/publ/work474.pdf Blaise Gadanecz Gadanecz Mr Economist Bank for International Settlements Ken Miyajima Miyajima Mr Senior Economist Chang Shu Shu Mr Senior Economist Bank for International Settlements Blaise Gadanecz, Ken Miyajima and Chang Shu December 2014 Bank for International Settlements: Working Papers 474 E44 E43 http://www.bis.org/publ/work473.htm Abstract of BIS Working Papers No 473 Recent empirical studies have shown that during the financial crisis of 2007-2008 banks that were more heavily exposed to liquidity risk contracted their supply of credit more sharply. I contribute to the identification of this effect by relying on the use of micro-level data on US mortgage loan applications, which allows me to identify liquidity risk as an important determinant of ... Liquidity Risk and the Credit Crunch of 2007-2008: Evidence from Micro-Level Data on Mortgage Loan Applications 2014-12-18T09:54:00Z Recent empirical studies have shown that during the financial crisis of 2007-2008 banks that were more heavily exposed to liquidity risk contracted their supply of credit more sharply. I contribute to the identification of this effect by relying on the use of micro-level data on US mortgage loan applications, which allows me to identify liquidity risk as an important determinant of ... Liquidity Risk and the Credit Crunch of 2007-2008: Evidence from Micro-Level Data on Mortgage Loan Applications 2014-12-18T09:54:00Z BIS liquidity risk bank lending channel credit lines mortgage credit core deposits PDF version http://www.bis.org/publ/work473.pdf Adonis Antoniades Antoniades Mr Economist Bank for International Settlements Adonis Antoniades December 2014 Bank for International Settlements: Working Papers 473 G21 E51 G28 http://www.bis.org/publ/work472.htm Abstract of BIS Working Papers No 472 Using a novel database on capital flow measures in Asia over 2004-2013, we investigate the impact of bond inflow measures on the cross-market correlations of weekly bond fund flows and of daily bond returns in 12 Asia-Pacific economies, after controlling for global, regional and local factors. We find that a bond... Correlations across Asia-Pacific bond markets and the impact of capital flow measures 2014-12-08T16:24:00Z Using a novel database on capital flow measures in Asia over 2004-2013, we investigate the impact of bond inflow measures on the cross-market correlations of weekly bond fund flows and of daily bond returns in 12 Asia-Pacific economies, after controlling for global, regional and local factors. We find that a bond... Correlations across Asia-Pacific bond markets and the impact of capital flow measures 2014-12-08T16:24:00Z BIS bond flow bond return cross-market correlation capital flow measure PDF version http://www.bis.org/publ/work472.pdf Pornpinun Chantapacdepong Chantapacdepong Mr Head of Monetary Policy Strategy Team 2 Bank of Thailand Ilhyock Shim Shim Mr Senior Economist Bank for International Settlements Pornpinun Chantapacdepong and Ilhyock Shim December 2014 Bank for International Settlements: Working Papers 472 G15 G28 http://www.bis.org/publ/work471.htm Abstract of BIS Working Papers No 471 This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks' behaviour during the global financial crisis and its aftermath. Using a large data set covering international banks headquartered in 14 advanced economies for the period 1995-2012, we find... The leverage ratio over the cycle 2014-11-14T08:42:00Z This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks' behaviour during the global financial crisis and its aftermath. Using a large data set covering international banks headquartered in 14 advanced economies for the period 1995-2012, we find... The leverage ratio over the cycle 2014-11-14T08:42:00Z BIS leverage procyclicality global financial crisis capital ratios PDF version http://www.bis.org/publ/work471.pdf Michael Brei Brei Mr Economist Bank for International Settlements Leonardo Gambacorta Gambacorta Dr Research Adviser Bank for International Settlements Michael Brei and Leonardo Gambacorta November 2014 Bank for International Settlements: Working Papers 471 C32 E52 E43 http://www.bis.org/publ/work470.htm Abstract of BIS Working Papers No 470 To the best of our knowledge, this is the first study to estimate the effect of liquidity regulation on bank balance sheets. It takes advantage of the fact that not all banks were made subject to tighter liquidity regulation by the UK Financial Services Authority (FSA) in 2010. Under this new regulation a subset of banks operating in the UK were required to hold a sufficient stock of high quality liquid assets (HQLA) to withstand two scenarios of stressed funding conditions. We find that banks adjusted both their asset and liability structures to meet tighter liquidity requirements. Banks increased the share of HQLA and funding from more stable UK non-financial deposits while reducing ... The impact of liquidity regulation on banks 2014-10-21T17:02:00Z To the best of our knowledge, this is the first study to estimate the effect of liquidity regulation on bank balance sheets. It takes advantage of the fact that not all banks were made subject to tighter liquidity regulation by the UK Financial Services Authority (FSA) in 2010. Under this new regulation a subset of banks operating in the UK were required to hold a sufficient stock of high quality liquid assets (HQLA) to withstand two scenarios of stressed funding conditions. We find that banks adjusted both their asset and liability structures to meet tighter liquidity requirements. Banks increased the share of HQLA and funding from more stable UK non-financial deposits while reducing ... The impact of liquidity regulation on banks 2014-10-21T17:02:00Z BIS Banking liquidity regulation average treatment effect PDF version http://www.bis.org/publ/work470.pdf Ryan Banerjee Banerjee Mr Economist Bank for International Settlements Hitoshi Mio Mio Mr Bank of Japan Ryan Banerjee and Hitoshi Mio October 2014 Bank for International Settlements: Working Papers 470 E32 G21 E51 G28 F30 http://www.bis.org/publ/work469.htm Abstract of BIS Working Papers No 469 This paper presents a framework to assess the relative importance of three key sources of productivity growth that research on international trade focuses on: (i) inter-industry specialisation; (ii) intra-industry reallocation of resources across heterogeneous firms, including firm entry and exit; and (iii) technological... When firms and industries matter: understanding the sources of productivity growth 2014-10-21T09:16:00Z This paper presents a framework to assess the relative importance of three key sources of productivity growth that research on international trade focuses on: (i) inter-industry specialisation; (ii) intra-industry reallocation of resources across heterogeneous firms, including firm entry and exit; and (iii) technological... When firms and industries matter: understanding the sources of productivity growth 2014-10-21T09:16:00Z BIS growth total factor productivity inter-industry trade intra-industry trade PDF version http://www.bis.org/publ/work469.pdf Ulf Lewrick Lewrick Mr Economist Bank for International Settlements Lukas Mohler Mohler Mr University of Basel Rolf Weder Weder Mr University of Basel Ulf Lewrick, Lukas Mohler and Rolf Weder October 2014 Bank for International Settlements: Working Papers 469 F14 O47 L60 http://www.bis.org/publ/work468.htm Abstract of BIS Working Papers No 468 Financial regulation is often framed as a question of economic efficiency. This paper, by contrast, puts the distributive implications of financial regulation at center stage. We develop a formal model in which the financial sector benefits from financial risk-taking by earning greater expected returns. However, risk-taking also increases the incidence of large losses that lead to credit crunches and impose negative externalities on the real economy. We describe ... The redistributive effects of financial deregulation: wall street versus main street 2014-10-08T13:13:00Z Financial regulation is often framed as a question of economic efficiency. This paper, by contrast, puts the distributive implications of financial regulation at center stage. We develop a formal model in which the financial sector benefits from financial risk-taking by earning greater expected returns. However, risk-taking also increases the incidence of large losses that lead to credit crunches and impose negative externalities on the real economy. We describe ... The redistributive effects of financial deregulation: wall street versus main street 2014-10-08T13:13:00Z BIS financial regulation distributive conflict rent extraction growth of the financial sector PDF version http://www.bis.org/publ/work468.pdf Anton Korinek Korinek Mr Johns Hopkins University Jonathan Kreamer Kreamer Mr University of Maryland Anton Korinek and Jonathan Kreamer October 2014 Bank for International Settlements: Working Papers 468 G28 H23 E44 E25 http://www.bis.org/publ/work467.htm Abstract of BIS Working Papers No 467 High sovereign debt in advanced economies has recently revived the debate about the role of coordination problems and self-fulfilling beliefs as drivers of sovereign default risk. I show how default risk can be decomposed in a solvency-risk component and a coordination-risk component. I then study how fiscal policy can be effective in managing the risk of coordination and I characterise how the shape of the optimal policy is affected by the presence of this risk: making the deficit contingent on interest rate movements is more effective in managing default risk than using non-contingent fiscal targets. Managing Default Risk 2014-10-08T13:08:00Z High sovereign debt in advanced economies has recently revived the debate about the role of coordination problems and self-fulfilling beliefs as drivers of sovereign default risk. I show how default risk can be decomposed in a solvency-risk component and a coordination-risk component. I then study how fiscal policy can be effective in managing the risk of coordination and I characterise how the shape of the optimal policy is affected by the presence of this risk: making the deficit contingent on interest rate movements is more effective in managing default risk than using non-contingent fiscal targets. Managing Default Risk 2014-10-08T13:08:00Z BIS fiscal policy coordination default risk global games PDF version http://www.bis.org/publ/work467.pdf Anna Zabai Zabai Mrs Economist II Bank for International Settlements Anna Zabai October 2014 Bank for International Settlements: Working Papers 467 D82 D84 E62 http://www.bis.org/publ/work466.htm Abstract of BIS Working Papers No 466 We analyse the turnover of fixed income derivatives in seven currencies to test the hypothesis that market participants increasingly use contracts based on private rather than government rates to hedge and to take positions. In the US dollar money market, private benchmarks long ago displaced government benchmarks. In the bond markets, evidence from organised exchanges and the Triennial Central Bank survey on over-the-counter (OTC) markets suggests that the benchmark is tipping from government bond futures to private interest rate swaps. The global financial crisis seems only to have interrupted this process... Benchmark tipping in the global bond market 2014-10-06T08:07:00Z We analyse the turnover of fixed income derivatives in seven currencies to test the hypothesis that market participants increasingly use contracts based on private rather than government rates to hedge and to take positions. In the US dollar money market, private benchmarks long ago displaced government benchmarks. In the bond markets, evidence from organised exchanges and the Triennial Central Bank survey on over-the-counter (OTC) markets suggests that the benchmark is tipping from government bond futures to private interest rate swaps. The global financial crisis seems only to have interrupted this process... Benchmark tipping in the global bond market 2014-10-06T08:07:00Z BIS safe assets Benchmark government bond futures interest rate swaps US treasury bonds German bunds Japanese government bonds UK gitls PDF version http://www.bis.org/publ/work466.pdf Lawrence L Kreicher Kreicher Professor Dartmouth College Robert N McCauley McCauley Mr Senior Adviser Bank for International Settlements Philip Wooldridge Wooldridge Mr Head of International Banking and Financial Statistics and Deputy Head of Statistics and Research Support Bank for International Settlements Lawrence L Kreicher, Robert N McCauley and Philip Wooldridge October 2014 Bank for International Settlements: Working Papers 466 O16 G12 E44 http://www.bis.org/publ/work465.htm Abstract of BIS Working Papers No 465 The headline consumer price inflation (CPI) is often considered too noisy, narrowly defined, and/or slowly available for policymaking. On the other hand, traditional core inflation measures may reduce volatility but do not address other issues and may even exclude important information. This paper develops a new ... Developing an underlying inflation gauge for China 2014-09-25T06:40:00Z The headline consumer price inflation (CPI) is often considered too noisy, narrowly defined, and/or slowly available for policymaking. On the other hand, traditional core inflation measures may reduce volatility but do not address other issues and may even exclude important information. This paper develops a new underlying inflation gauge (UIG) for China which differentiates between trend and noise, is available daily and uses a broad set of variables that potentially influence inflation. Its construction follows the works at other major central banks, adopts the methodology of a dynamic factor model that extracts the lower frequency components as developed by Forni et al. (2000) and draws on the experience of the People's Bank of China in modelling inflation. The paper is the first ... Developing an underlying inflation gauge for China 2014-09-25T06:40:00Z BIS China Monetary Policy inflation core inflation Forecasting dynamic factor models PDF version http://www.bis.org/publ/work465.pdf Marlene Amstad Amstad Ms Bank for International Settlements Ye Huan Ye The People’s Bank of China Guonan Ma Ma Mr Senior Economist Bank for International Settlements Marlene Amstad, Ye Huan and Guonan Ma September 2014 Bank for International Settlements: Working Papers 465 C13 E37 G15 E31 C33 C43 http://www.bis.org/publ/work464.htm Abstract of BIS Working Papers No 464 Well anchored inflation expectations are considered to be a reflection of credible monetary policy. In the past, anchoring has been assessed using either long-run inflation surveys or break-even inflation rates on financial assets with long maturities. But neither of these is ideal. Here we propose an alternative measure of inflation anchoring that makes full use of readily available, multiple-horizon, fixedevent forecasts. We show that a model where forecasts are assumed to diverge away from a long-run anchor towards actual inflation as the forecast horizon shortens fits the data well. It also provides simple estimates of ... Decaying expectations: what inflation forecasts tell us about the anchoring of inflation expectations 2014-09-25T06:39:00Z Well anchored inflation expectations are considered to be a reflection of credible monetary policy. In the past, anchoring has been assessed using either long-run inflation surveys or break-even inflation rates on financial assets with long maturities. But neither of these is ideal. Here we propose an alternative measure of inflation anchoring that makes full use of readily available, multiple-horizon, fixedevent forecasts. We show that a model where forecasts are assumed to diverge away from a long-run anchor towards actual inflation as the forecast horizon shortens fits the data well. It also provides simple estimates of the degree to which inflation expectations are anchored. Based on our estimation results we argue that inflation expectations have become more tightly ... Decaying expectations: what inflation forecasts tell us about the anchoring of inflation expectations 2014-09-25T06:39:00Z BIS Inflation targeting inflation expectations decay function PDF version http://www.bis.org/publ/work464.pdf Aaron Mehrotra Mehrotra Mr Senior Economist Bank for International Settlements James Yetman Yetman Mr Senior Economist Bank for International Settlements Aaron Mehrotra and James Yetman September 2014 Bank for International Settlements: Working Papers 464 E31 E58