Archive for May 3rd, 2021

Understanding the rise in US long-term interest rates

May 3, 2021

Tobias Adrian, Rohit Goel, Sheheryar Malik and Fabio Natalucci in this IMF blog explain the reasons for rising US interest rates:


Impact of foreign banks on the economy in the presence of sovereign stress

May 3, 2021

Ugo Albertazzi, Jacopo Cimadomo and Nicolò Maffei-Faccioli in this ECB paper:

This paper explores whether foreign intermediaries stabilise or destabilise lending to the real economy in the presence of sovereign stress in the domestic economy and abroad. Tensions in the government debt market may lead to serious disruptions in the provision of lending (i.e., the so-called “doom loop”).

In this context, the presence of foreign banks poses a fundamental, yet unexplored, trade-off. On the one hand, domestic sovereign shocks are broadly inconsequential for the lending capacity of foreign banks, given that their funding conditions are not hampered by such shocks. On the other, these intermediaries may react more harshly than domestic banks to a deterioration in local loan risk and demand conditions.

We exploit granular and confidential data on euro area banks operating in different countries to assess this trade-off. Overall, the presence of foreign lenders is found to stabilise lending, thus mitigating the doom loop.

Science as a Public Good: Public Use and Funding of Science

May 3, 2021

Impact of expansionary monetary policy: Swedes have hidden wealth

May 3, 2021

Sweden central bank Deputy Governor Henry Ohlsson in this speech defends the expansionary monetary policy:

For several years, the Riksbank has conducted very expansionary monetary policy to bring inflation closer to the target.

Expansionary monetary policy leads to several different effects. It causes asset prices to rise and thus makes asset-owners wealthier. As the wealth is unevenly distributed among households, the income from it, capital income, will also be unevenly distributed.

At the same time, however, unemployment decreases when monetary policy is expansionary. This makes labour income more even than it otherwise would have been. “The effects on capital income and labour income thus counteract each other and it is therefore difficult to say what effect the expansionary policy has on the distribution of total income”, Henry Ohlsson pointed out.

But this does not prevent wealth from being more unevenly distributed when asset prices rise. In Sweden, however, the effect is mitigated by the fact that a comparatively large share of the wealth is in collective pension funds. This means that more people benefit from increases in wealth than if these funds did not exist. In many other countries, these funds do not exist. “In other words, this hidden wealth is an aspect to consider when discussing the distributional effects of expansionary monetary policy,” Henry Ohlsson concluded.


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