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Mr. Itai Agur, Mr. Damien Capelle, Mr. Giovanni Dell'Ariccia, and Mr. Damiano Sandri
This paper reviews the theoretical arguments in favor and against MF and presents an empirical assessment of the risks that it may pose for inflation.
Mr. Richard Varghese and Ms. Yuanyan S Zhang

impact on core euro area countries. Despite the growing literature on ECB’s UMPs, some key questions remain unaddressed. First, how do bank equity returns and inflation expectations react to UMP announcements? This is a particularly important question to ask in the current conjucture for two reasons. First, while the pre-QE UMPs were expected to raise bank equity returns and lower sovereign stress during the crisis, the QE announcements 3 may have a mixed impact on bank equity returns given a prolonged period of low and increasingly negative interest rate

Mr. Richard Varghese and Ms. Yuanyan S Zhang
ECB President Draghi’s Jackson Hole speech in August 2014 arguably marked a new phase of unconventional monetary policies (UMPs) in the euro area. This paper examines the market impact and tranmission channels of this new wave of UMPs using a modified event study framework. They are found to have a more prominent impact on inflation expectations and exchange rates compared to the earlier UMP announcements. The impact on bank equity, however, is less significant in part due to narrowing profit margin in a low interest rate environment; and the marginal effect on sovereign spread compression has diminished. By extracting components of monetary policy shocks from the yield curve, we find that the traditional signaling channel of the monetary policy transmission continued to play an important role, but the portfolio rebalancing channel became more important in the new phase. Spillovers to non-euro area EU countries (the Czech Republic, Denmark, Poland, and Sweden) are transmitted mainly through the portfolio rebalancing channel, largely affecting sovereign yields and exchange rates.
Mr. Itai Agur, Mr. Damien Capelle, Mr. Giovanni Dell'Ariccia, and Mr. Damiano Sandri

@IMF.org IMFbookstore.org elibrary.IMF.org Contents Executive Summary Acronyms and Abbreviations 1. Introduction 2. Theoretical Underpinnings of Monetary Finance A. Quantitative Easing B. Monetary Finance for Macroeconomic Stimulus C. Monetary Finance to Prevent Self-Fulfilling Debt Crises 3. Historical Evidence on the Association Between Money and Inflation A. Empirical Approach B. Empirical Results 4. UMP Announcements and Inflation Expectations During COVID-19 5. Conclusion Annex 1. Monetary Finance in Historical Perspective Annex 2

International Monetary Fund. European Dept.

FROM UNCONVENTIONAL MONETARY POLICIES A. Introduction B. Recent Developments and Stylized Facts C. An Event Study Approach D. A Country-Level VAR Analysis E. A Global VAR Perspective on Spillovers F. Conclusion and Policy Implications References BOX 1. A Panel VAR Perspective on Spillovers FIGURES 1. Abnormal Movement of Selected Financial Variables Following ECB UMP Announcements 2. Impulse-Responses for Shock to the Euro Area Shadow Rate 3. Impulse-Responses for Shock to the Euro Area Term Spread 4. Impulse-Reponses for Shock to

Mr. Itai Agur, Mr. Damien Capelle, Mr. Giovanni Dell'Ariccia, and Mr. Damiano Sandri

much stronger increase in the price level. The analysis also shows that the association between money growth and inflation displays considerable non-linearities, as inflationary pressures increase more than proportionally with the size of the monetary expansion. Second, the paper examines how inflation expectations reacted to UMP announcements by central banks during the COVID-19 pandemic in 2020. The analysis focuses on EMDEs for two reasons. First, several EMDEs’ central banks engaged in direct financing of the government—purchasing government bonds in primary

International Monetary Fund. European Dept.

Announcement on Equity Index (Equity Index at t normalized to 100, daily) Source: Bloomberg and IMF staff calculations. 10. These developments may have been influenced by factors other than the ECB UMP announcements . For example, U.S. Fed monetary policy announcements, global real and financial shocks, domestic economic developments, and policy responses may have played a role. As such, a more rigorous econometric analysis is needed to help disentangle the impact of ECB UMP from other factors. The event study approach in the next section addresses some of these

International Monetary Fund. European Dept.
This paper identifies policies to increase productivity in the East, reduce regional income disparities, and promote overall income convergence. Achieving this objective will require improving educational attainment and reducing skill mismatches in the East, scaling up public infrastructure to attract investment to less productive regions, and facilitating labor mobility. This paper also discusses female labor participation in Poland and the potential impact on bank profitability of the recently implemented bank asset tax. Poland’s population is aging, yet it has an important underused source of qualified labor—its women. For Poland to unleash its full economic potential, it needs to embrace the vital contribution that women can make to its economy.
International Monetary Fund

provided by Jessica Allison and Sonia Echeverri. Contents GLOSSARY NON-UMP COUNTRY CASE STUDIES CAPITAL FLOWS AND FINANCIAL VULNERABILITY IN A MODEL OF MACROFINANCIAL RISK AND MACROECONOMIC STRESS A. Brief Description of the Model B. Design of Simulation Experiments C. Phase I—Capital Inflows D. Phase II—Turning of the Cycle and Capital Outflows EFFECTS OF UMP ON BOND AND EQUITY FLOWS AND PRICES A. Common Dynamics of Bond and Equity Funds Flows across the Globe: Risk-on/Risk-off Movements and Changes in Cross-correlations B. The Role of UMP

International Monetary Fund

Spillovers IX. SPILLOVERS FROM THE UNITED STATES 25. Effects of Accelerated Monetary Normalization in the United States Using G-35 26. Effects of Accelerated Monetary Normalization in the United States Using GIMF 27. Estimating Output Loss from the Fiscal Cliff Relation to the Spillover Report 28. United States Rebalancing Scenario TABLES Table 4.2 Impact of Surprises—10-Year Bond Yields Responses Table 4.1 Surprise Effect of UMP Announcements Table 4.4 Impact of Surprises—Foreign Exchange Rate Responses Table 4.3 Impact of Surprises—Stock Price