July 11th, 2021

Discussion Paper 2021/2 is now available: El-Shagi, M. / Ma, Y.: Nine blind men and the PBoC

Abstract:

Over the past decade, several dozen papers have been written that identify the People’s Bank of China’s monetary policy shocks. Yet, what often seems like minor differences in measurements of monetary policy and identifying assumptions yield vastly different implied shocks. In this paper, we pitch 20 shock time series from the literature against each other in a horse race. We use a local projections framework to produce impulse responses based on all shocks for production, prices, money and interest rates and use them to assess the economic plausibility of the competing results. Our results confirm the frequently mentioned relevance of monetary aggregates for Chinese monetary policy but also point the importance of using forward looking policy reaction functions (or account for forward looking variables in a VAR framework) when identifying monetary policy shocks.

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June 4th, 2021

Our latest Policy Forum deals with the implications of the famous trilemma between open capital markets, free exchange rates, and monetary autonomy for China.

Policy Forum 14 (June 2021)

April 30th, 2021

Our 2021Q1 Monetary Policy Report featuring our Q1 update of Chinese Divisia data is now online. Find out about the monetary and financial changes during the last few months.

April 13th, 2021

Discussion Paper 2021/1 is now available: El-Shagi, M. / Tochkov, K.: Divisia Monetary Aggregates for Russia: Money Demand, GDP Nowcasting, and the Price Puzzle

Abstract:

The lack of developed financial markets and well-functioning transmission channels assigns monetary aggregates in emerging economies the potential role of nominal anchor, intermediate target, or informational variable for monetary policy. The effectiveness of this approach relies crucially on the correct measurement of money, which is not fulfilled by the conventional index based on the simple sum of financial assets. This paper calculates alternative Divisia monetary aggregates for Russia over the period 1998-2019, which account for the level of liquidity of a given monetary asset by assigning weights according to the usefulness of that asset for transaction services. Divisia is found to follow a growth pattern markedly different from the simple sum, whereby deviations between the two series are even more pronounced when foreign-currency accounts are included. We conduct three empirical exercises to demonstrate the advantages of Divisia over the simple sum. Divisia confirms the stability of the money demand function and reflects portfolio shifts in response to changes in the opportunity cost of simple sum. Lastly, Divisia mitigates the price puzzle phenomenon relative to the conventional measure. We conclude that Divisia monetary aggregates would improve the effectiveness of monetary policy in Russia. 

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April 8th, 2021

Our latest Policy Forum deals with the Chinese financial and monetary system. 

Policy Forum 13 (April 2021)

November 16th, 2020

Discussion Paper 2020/8 is now available:

Benchimol, J. / Ivashchenko, J.: Switching Volatility in a Nonlinear Open Economy

Abstract:

Uncertainty about an economy's regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy, should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.

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November 9th, 2020

Our latest Policy Forum deals with the relation of trade liberalization and inequality in China.

Policy Forum 12 (November 2020) 

October 28th, 2020

Discussion Paper 2020/6 is now available: Benchimol, J. / El-Shagi, M. / Saadon, Y..: Do Expert Experience and Characteristics Affect Inflation Forecasts?

Abstract:

Each person's characteristics may influence that person's behaviors and their outcomes. We build and use a new database to estimate experts' performance and boldness based on their experience and characteristics. We classify experts providing inflation forecasts based on their education, experience, gender, and environment. We provide alternative interpretations of factors affecting experts' inflation forecasting performance, boldness, and pessimism by linking behavioral economics, the economics of education, and forecasting literature. An expert with previous experience at a central bank appears to have a lower propensity for predicting deflation.

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October 26th, 2020

Discussion Paper 2020/5 is now available: El-Shagi, M. / Jiang, L. / Zhang, L..:  One Country - Two Monetary Policies: Evidence from a new indicator of the PBoC´s monetary policy support for poor regions

Abstract:

In recent years, one of the PBoC′s major issues was to avoid a generally conservative monetary policy that would jeopardize the central government′s poverty-alleviation strategy by limiting credit supply in rural areas where it is already scarce. We develop a range of new indicators to measure those aspects of the PBoC′s policy and demonstrate that the PBoC has successfully implemented policies targeted at poor counties. That is, we show that a central bank has the general potential to address regional diversity and distributional issues.

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October 20th, 2020

Discussion Paper 2020/4 is now available: El-Shagi, M. / Zheng, Y.: Money Demand: A Pseudo-Metastudy

Abstract:

In this paper, we provide conclusive evidence on the role of measurement and estimation techniques in money demand estimation. Over the past few decades, there have been 100s of papers assessing money demand in the main economies of the globe. We develop a pseudo-metastudy framework where, based on modeling choices found in the literature, we estimate thousands of different specifications for the US, China, the UK and the Euro area, allowing us to assess what has driven the diverging results in the previous literature.

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