May 25th, 2020

Discussion Paper 2020/3 is now available: Tong, B. / Yang, G.: Interest Rate Pegging, Fluctuations and Fiscal Policy in China

Abstract:

This paper proves in a New Keynesian model that interest rate pegging can explain the unusual business cycle fluctuations in China. It is traditional wisdom that when the nominal interest rate is inflexible, there is no unique equilibrium in macroeconomic models. We prove that a unique equilibrium exists if the nominal rate is pegged for a limited period, after which it switches to a flexible rate regime.The peg alters the propagation of external shocks, magnifies volatility of endogenous variables, and leads to instability of the economy. Besides, the model becomes more unstable when the peg duration extends, and when the pegged rate deviates from steady state. At the same time, fiscal multiplier increases under the peg, indicating fiscal policy may be more effective in mitigating economic fluctuations when monetary policy is restricted by interest rate pegging.

GET THE ARTICLE

Special Issue in Economic Systems

February 1st, 2020

We are excited to announce that the CFDS is organizing its second special issue under the umbrella of the BRICS Network University (BRICS NU). This time a Symposium (a collection of roughly half a dozen thematically matching papers in one issue) will be published in Economic Systems on the topic "Economic Growth and Development in the BRICS". Submission Deadline is June 30th, 2020. 

Call for Papers

November 5th, 2019

Discussion Paper 2019/9 is now available: Chen, Y. / Jiang, L.: Liquidity Risk and Corporate Bond Yield Spread: Evidence from China?

Abstract:

This paper investigates the contribution of liquidity risk to Chinese corporate bond spreads. We calculate corporate bond spreads based on the full treasury yield curve and establish a set of liquidity measures of the Chinese corporate bonds. Our empirical study shows that liquidity premium accounts for a relatively smaller portion of corporate bond spread in China, although the market liquidity is low and corporate bond issuers are strictly pre-screened. These findings are interesting, as the developed markets have better liquidity and less pre-issuance restriction, and liquidity premium still explains a relatively larger portion of corporate bond spread. Besides, we also explore the determinants of Chinese corporate bond liquidity and default premiums.

GET THE ARTICLE

Discussion Paper 2019/6 is now available: El-Shagi, M. / Fidrmuc, J. / Yamarik, S.: Inequality and Credit Growth in Russian Regions

Abstract:

We test the Rajan hypothesis using data for 75 highly heterogeneous Russian regions between the Russian crisis and the introduction of international sanctions (2000-2012). Applying static as well as dynamic panel data models, we show that a rise in income inequality measured by regional Gini indices is significantly correlated with the growth of personal loans. Thus, the rising inequality in Russia is likely to have implications on financial staiblity and occurrence of banking crises. Moreover, the correlation of inequality and corporate loans indicates that inequality affects loans growth across more channels than those implied by the Rajan hypothesis.

GET THE ARTICLE

Discussion Paper 2019/5 is now available: El-Shagi, M. / von Schweinitz, G.: Fiscal Policy and Fiscal Fragility: Evidence from the OECD

Abstract:

In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growh, conditional on the fragility of government finances. Based on the database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon.

GET THE ARTICLE

More Articles ...

  1. Policy Forum 8 now online
  2. New Discussion Paper Available - DP 2019/4
  3. New Discussion Paper Available - DP 2019/3
  4. 4th Monetary Policy Report Published
Page 1 of 5