Foreign exchange rate expectations: Micro survey data

http://www.econ.puc-rio.br/uploads/adm/trabalhos/files/td630.pdf

FX interventions in Brazil: a synthetic control approach

In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy - a policy often known as "quantitative easing" or "QE" The first half of the paper reviews the international evidence on the impact on financial markets and economic activity of this policy It finds that these central bank balance sheet expansions had a discernible and significant impact on financial markets and the economy The second half of the paper provides new empirical analysis on the macroeconomic impact of central bank balance sheet expansions, across time and countries It finds three key results First, it is only when central bank balance sheet expansions are used as a monetary policy tool that they have a significant macro-economic impact Second, there is evidence for the US that the effectiveness of QE may vary over time, depending on the state of the economy and liquidity of the financial system And third, QE can have strong spill-over effects cross-border, acting mainly via financial channels For example, the impact of US QE on UK economic activity may be as large as the impact on US economic activity

QE: the story so far

Quantitative easing and related capital flows into Brazil: Measuring its effects and transmission channels through a rigorous counterfactual evaluation

Highly accommodative monetary policies in the major advanced economies and the questions bout the exit from such policies have created major challenges for policymakers in emerging market economies (EMEs). Quite a few of EMEs that experienced rapid capital inflows and strong currency appreciation pressures during 2010-12 saw a sharp reversal in episodes of market volatility from May 2013 to February 2014. This meeting of Deputy Governors focused on three main questions: (i) How can external monetary conditions become a source of risks to monetary and financial stability in EMEs? (ii) How should central banks respond to such shocks? (iii) And, can there be a greater international role for emerging market currencies? A key conclusion from the discussion is that asset prices and interest rates have become more correlated globally during the period of unprecedented monetary easing by advanced economies. One major worry was the risk of an abrupt reversal of capital inflows to EMEs. Central banks face difficult policy dilemmas in preserving financial stability while pursuing their monetary policy goals. It is hard for EME monetary authorities to counter a prolonged period of very low long-term interest rates and increased risk-taking in global financial markets.Full publication: The Transmission of Unconventional Monetary Policy to the Emerging Markets

https://www.bis.org/publ/bppdf/bispap78a_rh.pdf

The Transmission of Unconventional Monetary Policy to the Emerging Markets - An Overview

Loan-to-value policy and housing finance: Effects on constrained borrowers

In this work, we propose a methodology to decompose drivers of systemic risk that arise due to insolvency contagion in evolving financial networks. There is an ongoing discussion on how network topology and capital buffer influence systemic risk. On the one hand, the network contagion literature tends to emphasize the influence of the network topology. On the other hand, policy works tend to discuss restrictions over the capital buffers of financial institutions. Systemic risk is usually a complex function of both risk drivers and thus isolating the contributive effects of each risk driver to systemic risk is not a trivial task. Our decomposition methodology permits to identify and isolate these effects and can be used for evaluating the effectiveness of policy issues that affect either the network topology or capital buffer of banks. We apply our methodology to the global banking network and find that the network topology explains most of the systemic risk measure’s volatility. Additionally, we show that the capital buffer explains the persistent reduction in systemic risk buildup with effects concentrated around the global financial crisis. Our results attest the importance played by both risk drivers in measuring systemic risk.

Identifying systemic risk drivers in financial networks

This paper estimates the impact of reserve requirements (RR) on credit supply in Brazil, exploring a large loan-level dataset. We use a difference-in-difference strategy, first in a long panel, then in a cross-section. In the first case, we estimate the average effect on credit supply of several changes in RR from 2008 to 2015 using a macroprudential policy index. In the second, we use the bank-specific regulatory change to estimate credit supply responses from (1) a countercyclical easing policy implemented to alleviate a credit crunch in the aftermath of the 2008 global crisis; and (2) from its related tightening. We find evidence of a lending channel where more liquid banks mitigate RR policy. Exploring the two phases of countercyclical policy, we find that the easing impacted the lending channel on average two times more than the tightening. Foreign and small banks mitigate these effects. Finally, banks are prone to lend less to riskier firms.

Credit Supply Responses to Reserve Requirement: loan-level evidence from macroprudential policy

This paper proposes a novel orthogonality condition based on realized volatility that allows instrumental variable estimation of the effects of spot intervention in foreign exchange markets. We consider parametric and nonparametric instrumental variable estimation, and propose a test based on the average treatment effect of intervention. We apply the method to a unique dataset for the BRL/USD market with full records of spot intervention and net order flow intermediated by the financial system. Overall the average effect of a 1 billion USD sell or buy interventions are close to the 0.51% depreciation or appreciation, respectively, estimated in the linear framework, which is therefore robust to nonlinear interactions. The estimates are a bit lower controlling for derivative operations, which suggests the intervention policies (spot and swaps) are complementary

/pdf/realized-volatility-as-an-instrument-to-official-3hortorem2.pdf

João Barata Ribeiro Blanco Barroso

Papers

Quantitative easing and related capital flows into Brazil: Measuring its effects and transmission channels through a rigorous counterfactual evaluation

Loan-to-value policy and housing finance: Effects on constrained borrowers

Identifying systemic risk drivers in financial networks

Credit Supply Responses to Reserve Requirement: loan-level evidence from macroprudential policy

Realized Volatility as an Instrument to Official Intervention