Picture from the 4th HenU/INFER Workshop on Applied Macroeconomics

September 27th 2018

Our 5th HenU/INFER Workshop will be held on March 29th and 30th, 2019 (post-conference trip on March 31st). We are excited to announce our keynote speakers for the 2019 workshop - Prof. Lawrence Christiano from Northwestern University, Prof. Randall Wright from the University of Wisconsin Madison and Prof. Joshua Aizenman from the University of Southern California. Selected, excellent papers will be considered for a special issue in Journal of International Money and Finance on "Monetary and Fiscal Fragility in the 2020s". Visit our Conference Website for more information or directly submit your paper now via conferencemaker.

August 22nd, 2018

Discussion Paper 2018/6 is now available: El-Shagi, M. / Yamarik, S.: IMF Conditionality and Capital Controls: Capital Account Liberalization to Capital Inflow Management?

Abstract:

Since the end of the Bretton Woods system, promoting capital account liberalization has been one of the tenants of the IMF. Capital account liberalization was deemed one of the 10 pillars of what was often dubbed the Washington Consensus. Yet things changed drastically with the Global Financial Crisis of 2008. From 2009 to 2012, comments from top IMF officials and staff reports displayed quite clearly that the IMF had revised its position where capital controls could be part of the toolkit. In this paper, we assess the role of the IMF in capital account liberalization from 1995 to 2015. We use a midpoint-inflated ordered probit model to estimate the effects of being under IMF conditionality on capital controls, allowing for different effects for pre- and post-Financial Crisis. We find that the IMF did indeed drive liberalization of capital inflows in the precrisis era, but stopped doing so in the post-crisis period.

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July 4th, 2018

Discussion Paper 2018/5 is now available: Rongrong Sun: Monetary Policy Announcements and Market Interest Rates’ Response: Evidence from China

Abstract:

This paper uses the event study to estimate the impact of various monetary policy announcements on market interest rates in China over the 2002-2017 period. I find that financial markets understand the quantitative signals better: the market response to an announced adjustment of the regulated retail interest rate and the required reserve ratio is positive and significant at all maturities of bond rates, but smaller at the long end of the yield curve. However, the market barely responds to announced changes in the qualitative policy stance index, which contains limited vague information and is easily anticipated. Two newly introduced central bank lending rates do not appear to be sufficient to replace the retail interest rate and the reserve ratio in guiding market rates in the post-deregulation era. My results suggest that the PBC adopts a publicly announced short-term interest-rate operating target regime, similar to the Fed’s federal funds rate target.

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July 4th, 2018

Discussion Paper 2018/4 is now available: Rongrong Sun: Requiem for the Interest-Rate Controls in China

Abstract:

This paper reviews the retail interest-rate-control deregulation in China over the 1993-2015 period and provides a preliminary assessment of the PBC’s replacement monetary framework. I show that the interest-rate controls triggered the development of deposit substitutes that banks used to circumvent the restrictions, which in turn drove deposits out of commercial banks. Concerned by deterioration of bank profits and build-up of financial frangibility, the PBC has been pushing strongly for interest-rate liberalization. I quantify the distortionary effects of these controls: disintermediation, a rising shadow banking system and financial repression. Despite the official lift-off of the controls, the retail interest rates are still subject to the PBC’s window guidance and other pricing mechanism guidance. The interest-rate corridor does not function well in confining money market rates. This suggests that the PBC adopt a target money market rate system.

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May 8th, 2018

Discussion Paper 2018/3 is now available: Michael Funke, Rongrong Sun, Linxu Zhu: The Credit Risk of Chinese Households – A Micro-Level Assessment

Abstract: Household borrowing in China has increased considerably in recent years, raising concerns about the household sector’s vulnerability and implications for the stability of the financial system. We construct a number of granular debt-burden indicators at the level of individual Chinese households and calculate the share of households that are financially vulnerable using the three available waves (2011, 2013 and 2015) of China’s Household Finance Survey. Overall loan-to-value (LTV) ratios appear safe and sound at first glance, but closer scrutiny reveals that Chinese households in the lowest income quintile face high vulnerability and struggle to meet their debt commitments. Our stress tests suggest that Chinese households in higher quintiles, despite the huge increase in household indebtedness, are not particularly vulnerable to declining incomes or falling house prices.

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