Archive for July 11th, 2019

What drives demand for banknotes? Swiss edition

July 11, 2019

Interesting paper by Katrin Assenmacher, Franz Seitz and Jorn Tenhofen:

Knowing the part of currency in circulation that is used for transactions is important information for a central bank. For several countries, the share of banknotes that is hoarded or circulates abroad is sizeable, which may be particularly relevant for largedenomination banknotes. We analyse the demand for Swiss banknotes over a period starting in 1950 to 2017 and use different methods to derive the evolution of the amount that is hoarded.

Our findings indicate a sizeable amount of hoarding, in particular for large denominations. The hoarding shares increased around the break-up of the Bretton Woods system, were comparatively low in the mid-1990s and have increased significantly since the turn of the millennium and the recent financial and economic crises.

Well, the results are just opposite of what central bankers and government will tell you. They say people hoard money for all kinds of illegal transactions, black money and so on. They never tell you that most of the time common people hoard money for all the policy problems created by the government and central banks.

How NZ just upset India..

July 11, 2019

It is something about World Cup (WC) Semi Finals and NZ (or Black Caps) that we get such matches. Whether it was 92 against Pak (which NZ lost) or 2015 against South Africa (NZ won) or the 2019 against India (NZ won), all these matches have been absolute classics. Though the one between Aus and  South Africa in 1999 is going to take something to beat.

NZ comes across as an interesting team, a team which usually punches above its weight. It had played 758 matches on the even of the 2019 World Cup and won 343 and lost 370 of them (6 ties and 40 no result). It has a win-loss ratio of 0.924 which is 9th in the list of countries that have played ODI cricket since 1971. Infact, it has lower Win/Loss ratio than Afghanistan! Even Nepal which has played 6 ODIs, has a better W/L ratio of 1 (3 won and 3 lost).

But come to WC, NZ is a different ball game.

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Cost-benefit Analysis of Leaning against the Wind

July 11, 2019

Should central banks increase policy rates to mitigate financial instability?

Trent Saunders and Peter Tulip of RBA look at the evidence from Australia:

Setting interest rates higher than macroeconomic conditions would warrant due to concerns about financial instability is called ‘leaning against the wind’. Many recent papers have attempted to quantify and evaluate the effects of this policy. This paper summarises this research and applies the approach to Australia.

The papers we survey see the benefit of leaning against the wind as avoiding financial crises, such as those that affected Australia in 1990 or other countries in 2008. Most of the international research finds that interest rates have too small an effect on the probability of a crisis for this benefit to be worth higher unemployment. Using Australian data, we find similar results. We estimate the costs of leaning against the wind to be three to eight times larger than the benefit of avoiding financial crises. However, research has not yet quantified the increased resilience of household balance sheets, which may be an extra benefit of leaning against the wind.

 


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