Dissertations / Theses on the topic 'Zero interest rate lower bound'

Cette thèse présente plusieurs extensions relatives aux modèles affines positifs de taux d'intérêt. Un premier chapitre introduit les concepts reliés aux modélisations employées dans les chapitres suivants. Il détaille la définition de processus dits affines, et la construction de modèles de prix d'actifs obtenus par non-arbitrage. Le chapitre 2 propose une nouvelle méthode d’estimation et de filtrage pour les modèles espace-état linéaire-quadratiques. Le chapitre suivant applique cette méthode d’estimation à la modélisation d’écarts de taux interbancaires de la zone Euro, afin d’en décomposer les fluctuations liées au risque de défaut et de liquidité. Le chapitre 4 développe une nouvelle technique de création de processus affines multivariés à partir leurs contreparties univariées, sans imposer l’indépendance conditionnelle entre leurs composantes. Le dernier chapitre applique cette méthode et dérive un processus affine multivarié dont certaines composantes peuvent rester à zéro pendant des périodes prolongées. Incorporé dans un modèle de taux d’intérêt, ce processus permet de rendre compte efficacement des taux plancher à zéro
This thesis presents new developments in the literature of non-negative affine interest rate models. The first chapter is devoted to the introduction of the main mathematical tools used in the following chapters. In particular, it presents the so-called affine processes which are extensively employed in no-arbitrage interest rate models. Chapter 2 provides a new filtering and estimation method for linear-quadratic state-space models. This technique is exploited in the 3rd chapter to estimate a positive asset pricing model on the term structure of Euro area interbank spreads. This allows us to decompose the interbank risk into a default risk and a liquidity risk components. Chapter 4 proposes a new recursive method for building general multivariate affine processes from their univariate counterparts. In particular, our method does not impose the conditional independence between the different vector elements. We apply this technique in Chapter 5 to produce multivariate non-negative affine processes where some components can stay at zero for several periods. This process is exploited to build a term structure model consistent with the zero lower bound features

In this paper we propose a time-varying parameter VAR model for the housing market in the United States, the United Kingdom, Japan and the Euro Area. For these four economies, we answer the following research questions: (i) How can we evaluate the stance of monetary policy when the policy rate hits the zero lower bound? (ii) Can developments in the housing market still be explained by policy measures adopted by central banks? (iii) Did central banks succeed in mitigating the detrimental impact of the financial crisis on selected housing variables? We analyze the relationship between unconventional monetary policy and the housing markets by using the shadow interest rate estimated by Krippner (2013b). Our findings suggest that the monetary policy transmission mechanism to the housing market has not changed with the implementation of quantitative easing or forward guidance, and central banks can affect the composition of an investors portfolio through investment in housing. A counterfactual exercise provides some evidence that unconventional monetary policy has been particularly successful in dampening the consequences of the financial crisis on housing markets in the United States, while the effects are more muted in the other countries considered in this study. (authors' abstract)
Series: Department of Economics Working Paper Series

2016 - 2017
The Vector Autoregressive (VAR) Models can be considered as a dynamic multivariate extension of the univariate autoregressive models. This family of models has become very popular in macroeconomics analysis after the work of Sims(1980) and they are widely used in time series literature thanks to their flexibility. As a matter of fact, by setting appropriately a VAR model, we can describe efficiently the dynamics of the economy and provide quite accurate forecasts. During recent years, researchers developed different VAR models with the purpose to represent better the data generating process. Among these, the nonlinear VAR models have gained a central role in macroeconometric analysis in testing the theory, due to their capacity to capture a richer set of dynamics regarding current macroeconomic phenomenons. Depending on the specific model, they can allow, for example, different states (regimes) of the world, to allow the coefficients of the model to vary over time in each time unit, allowing for interactions between variables potentially revealing important information. The first paper included in this thesis is a survey which have the purpose to examine linear and nonlinear VAR models. The second and third papers present two empirical applications of the Interacted Panel VAR Model, which is a new nonlinear methodology we illustrated over the first paper. Specifically, we analyze in both papers the behavior of government spending multiplier when the interest rate is at the Zero Lower Bound (ZLB). This is a highly topical question since the outbreak of Great Recession, given that many policy makers have wondered whether fiscal stimulus would be able to help the economy to recover from recession. In particular, there exist two different and opposite theoretical predictions. New Keynesian DSGE models show that, when the interest rate is at the ZLB, a raise in government spending has a strong and positive impact on the economy. On the other side, theoretical prediction indicate very low multipliers, showing that an increase in government spending does not stimulate private activity. Although there exist many theoretical predictions about the size of government spending multiplier at the ZLB, very few empirical evidences are provided. These two paper aim to shed light on the size of the government spending multiplier at the ZLB. Among the nonlinear VAR models, we choose the Interacted (Panel) VAR Model because it offers an important advantage compared to others nonlinear approaches. Thanks to the interaction term, we are able to investigate among the entire sample. This can be done also within a time varying framework, but it implies a larger number of estimates which requires informative priors. In order to be as more agnostic as possible, we also use a Bayesian approach for inference but with uninformative priors. In the first paper we develop an Interacted VAR Model and conduct our analysis on the United States sample. In order to identify government spending shocks we use the sign restrictions approach, furthermore we use the forecast series of government spending to account for the potential effects of anticipation that can pose serious problems for the identification of government spending shocks. We find that the government spending multiplier ranges between 3.4 and 3.7 at the ZLB, while it ranges from 1.5 to 2.7 away from the ZLB. Then, we develop a Factor-Augmented IVAR (FAIVAR) model with the purpose to address another limited information problem. It confirms our results from a qualitatively point of view. As a matter of fact, the government spending multiplier ranges between 2.0 and 2.1 at the ZLB and between 1.5 and 1.8 away from the ZLB. These results are also in line with some recent studies which predict higher multipliers at the ZLB than in normal times... [edited by author]
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Mestrado em Economia Monetária e Financeira
Na atual estrutura monetária, os bancos centrais estão limitados no seu objetivo de assegurar estabilidade de preços e pleno emprego devido ao limite inferior zero nas taxas de juro nominais. Isto acontece porque taxas de juro nominais negativas nos depósitos bancários - condição necessária para alcançar taxas de juro nominais negativas no crédito bancário - causariam uma fuga de depósitos para dinheiro físico, pois o dinheiro físico paga uma taxa de juro nominal igual a zero. Para contrariar esta restrição, propomos uma nova arquitetura monetária que, ao tornar o banco central como a única fonte de financiamento para empréstimos bancários a taxa de juro negativa, irá permitir aos bancos conceder crédito a juros negativos de forma lucrativa - podendo estes manter as taxas de juros dos depósitos dos seus clientes a valores não negativos.
Under the current monetary framework, central banks are limited in their pursue of price stability and full employment due to the zero lower bound on nominal interest rates. This happens because negative nominal rates on bank deposits - deemed a necessary condition for negative nominal rates on bank credit - will cause a massive flight from deposits to cash, as cash pays zero nominal interest rates. To counter this constraint, we propose a new monetary architecture that by making the central bank the single source of funding for bank loans at negative nominal interest rates, enables banks to profitably extend credit at negative nominal rates - while still paying zero interest rates on their clients' deposits.
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Mestrado em Economia Monetária e Financeira
Tipicamente os Bancos Centrais usam as taxas de juro para inverter os efeitos das crises económicas. No entanto, temos observado que se as taxas de juro nominais já estiverem muito próximo de zero, então a capacidade que estes têm de usar este mecanismo para estimular a actividade económica é reduzida. O principal objectivo desta dissertação é estudar se aumentando o nível médio de inflação, aumenta a capacidade do bancos centrais em inverter crises económicas. Especificamente, iremos estudar se a taxa de juro real diminui mais para valores médios mais elevados da taxa de inflação, quando um choque exógeno na taxa de juro nominal ocorre. Para tal, iremos utilizar um modelo de equilíbrio geral, onde os agentes são heterogéneos na quantidade de moeda que detêm. O nosso modelo sugere que aumentar o target da inflação não aumenta o estímulo provocado pela taxa de juro real, quando um choque de 1 ponto-percentual ocorre sobre a taxa de juro nominal. De facto, o que se verifica é que a taxa de juro real diminui mais quanto menor for o nível médio de inflação. Isto ocorre porque o grau de price stickiness é menor para níveis mais elevados do target da inflação.
Typically when central banks face economic slowdowns they use the interest rate channel to boost economies. However, we have seen that if the nominal interest rate is already at low levels, then their capacity to invert such economic slowdowns is little. The main objective of this dissertation is to study whether increasing the inflation target can increase the capacity of central banks to invert economic downturns. Specifically, we will study whether the real interest rate decreases more when the inflation target is higher, as a response to a negative shock in the nominal interest rate. To study this we use a general equilibrium model, where agents are heterogeneous in their amount of money holdings. Our model suggests that increasing the inflation target does not increase the real stimulus of central banks when they decrease the nominal interest rate by one percentage-point. In fact, the real interest rate declines more, the lower the target. This occurs because the degree of price stickiness is lower for higher levels of inflation.
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This diploma thesis describes the Quantitative easing as an unconvetional tool of the monetary policy. In the first chapter of this thesis there is theoretical analysis of the zero lower bound and also of specific phenomenon that might occur in this situation (the liquidity trap). The second chapter deals with the quantitative easing as a monetary policy with focus on the United States. It summarizes its development during three so called rounds, during which the quantitative easing has been used. This chapter also contains analysis of the entrance and exit strategy of the quantitative easing. In the third chapter, there is an econometric model estimated by ordinary least squares method with robust errors. This model is being used to verify the hypothesis whether the quantitative easing lowered long-term interest rates. The hypothesis has been rejected as the quantitative easing does not have statistically significant effect on any selected long-term bonds.

Though it is customary to use standard Gaussian term structure models for term structure modelling, this becomes theoretically implausible in cases when nominal interest rates are near zero: Gaussian models can have arbitrarily large negative rates, whereas arbitrage considerations dictate that rates should remain positive (or very slightly negative at most). Black (1995) suggests that interest rates include an optionality which restricts them to non-negative values. This introduces a non-linearity at the zero-lower bound that makes these so-called shadow-rate models a computational challenge. This dissertation analyses the shadow-rate approximations suggested by Krippner (2013) and Priebsch (2013) for the Vasicek and ˇ arbitrage-free Nelson-Siegel (AFNS) models. We also investigate and compare the accuracy of the iterated extended Kalman filter (IEKF) with that of the unscented Kalman filter (UKF). We find that Krippner’s approach approximates interest rates within reasonable bounds for both the 1-factor Vasicek and AFNS models. Prieb- ˇ sch’s first-cumulant method is more accurate than Krippner’s method for a 1-factor Vasicek model, while Priebsch’s second-cumulant method is deemed impractical ˇ because of the computational time it takes. In a multi-factor AFNS model, only Krippner’s framework is feasible. Moreover, the IEKF outperforms the UKF in terms of filtering with no significant difference in run-time.

This diploma thesis is focused on unconventional monetary policy tools that individual central banks introduced into practise as a response to the global financial crisis. It is about quantitative easing policy, foreign exchange interventions with exchange rate commitment and negative interest rates. This thesis also deals with classical tools of monetary policy such as open market operations, discount tools, minimum requirement reserve or foreign exchange interventions. The aim of the thesis is to document the development of central banks policy and then to examine relationship of selected assets in comparison with balance sheet of Federal reserve systems with help of correlation coefficient. The thesis also deals with the thought how should behave in the zero lower bound environment and what are the pitfalls of unconventional monetary policy.

Previous research suggests that a policy interest rate cut below the reversal interest rate reverses the intended effect of monetary policy and becomes contractionary for lending. This paper is an empirical investigation into whether the reversal interest rate was breached in the Swedish negative interest rate environment between February 2015 and July 2016. We find that banks with a greater reliance on deposit funding were adversely affected by the negative interest rate environment, relative to other banks. This is because deposit rates are constrained by a zero lower bound, since banks are reluctant to introduce negative deposit rates for fear of deposit withdrawals. We show with a difference-in-differences approach that the most affected banks reduced loans to households and raised 5 year mortgage lending rates, as compared to the less affected banks, in the negative interest rate environment. These banks also experienced a drop in profitability, suggesting that the zero lower bound on deposits caused the lending spread of banks to be squeezed. However, we do not find evidence that the reversal rate has been breached.
Tidigare forskning menar att en sänkning av styrräntan under brytpunktsräntan gör att penningpolitiken får motsatt effekt och blir åtstramande för utlåning. Denna rapport är en empirisk studie av huruvida brytpunktsräntan passerades i det negativa ränteläget mellan februari 2015 och juli 2016 i Sverige. Våra resultat pekar på att banker vars finansiering till större del bestod av inlåning påverkades negativt av den negativa styrräntan, relativt till andra banker. Detta beror på att inlåningsräntor är begränsade av en lägre nedre gräns på noll procent. Banker är ovilliga att introducera negativa inlåningsräntor för att undvika att kunder tar ut sina insättningar och håller kontanter istället. Vi visar med en "difference-in-differences"-analys att de mest påverkade bankerna minskade lån till hushåll och höjde bolåneräntor med 5-åriga löptider, relativt till mindre påverkade banker, som konsekvens av den negativa styrräntan. Dessa banker upplevde även en minskning av lönsamhet, vilket indikerar att noll som en nedre gräns på inlåningsräntor bidrog till att bankernas räntemarginaler minskade. Vi hittar dock inga bevis på att brytpunktsräntan har passerats.

This diploma thesis focuses on the use of inflation targeting as monetary policy regime in a situation of imminent deflation. The thesis is divided into three main parts. The first part introduces the basic mechanism of inflation targeting with its basic elements and describes its possible failure. The second part focuses mainly on the analysis of the economic factors which contributed to achieving the zero lower bound for the repo rate of CNB. The third part presents an alternative (unconventional) monetary policy instruments in case of achieving zero lower bound, in particular the use of the exchange rate. The end of the last part of this thesis analyzes the development of key macroeconomic indicators in the Czech Republic.

Cette thèse étudie le choix des régimes de change dans des contextes économiques particuliers. La première partie (Chapitres 1 et 2) considère le cas des petits pays dont les dettes sont libellées en monnaies étrangères et celui d’une région constituée de tels petits pays lorsqu’il existe une similitude dans la composition des paniers définissant leurs taux de change effectifs. La deuxième partie de la thèse (Chapitres 3 et 4) se penche sur la considération des différents régimes de change dans le contexte monétaire de trappe à liquidité comparativement à un environnement monétaire traditionnel. En se basant sur une modélisation théorique de type DSGE, l’économétrie bayésienne et des données de panel, la thèse utilise principalement l’analyse des fonctions de réponses, de bien-être et de désalignements monétaires comme critères de comparaison de plusieurs régimes monétaires alternatifs. Les principaux enseignements de cette thèse se résument ainsi. Le change flexible semble être le meilleur régime pour des petites économies ouvertes comme ceux de l’Asie du Sud-Est. Au niveau régional, il est montré le ciblage effectif conduit à une stabilité des taux de change bilatéraux de la région, une sorte de fixité des taux de change qui ressemblerait à une zone monétaire de facto. Dans le contexte monétaire de trappe à liquidité, on trouve que,contrairement à la croyance commune lors la crise de la zone euro, l’union monétaire est plus performante que des politiques nationales de change flexible. Seule une intervention sur le taux de change nominal pourrait permettre au régime de change indépendant de dominer l’union monétaire. A travers une analyse théorique et empirique de l’effet de la trappe à liquidité sur l’ampleur des désalignements monétaires, il est aussi montré que la contrainte ZLB tend à réduire le désalignement monétaire dans une union monétaire comparativement aux politiques nationales de flottement.Cela plaide en faveur du renforcement de l’intégration monétaire au sein d’une union durant la période de trappe à liquidité
This thesis investigates the choice of exchange rate regimes in specific economic contexts. The first part of this work (Chapters 1 and 2) considers the case of small open economies with foreign-currency denominated debt and that of a region where there is a similarity among trade-weighted currency baskets of countries. The second part of the thesis (Chapters 3 and 4) focuses on the study of exchange rate regimes and monetary integration in a liquidity trap environment relative to “tranquil” times. Based on dynamic stochastic general equilibrium (DSGE) models and Bayesian and Panel data econometrics, the thesis mainly uses the analyses of impulse responses, welfare and currency misalignments as comparison criteria among alternative currency regimes.The key lessons from this work are summarized as follows. For small open economies heavily in debted in foreign currency, like those of Southeast Asia, the flexible exchange is the best regime, followed by intermediate and fixed exchange rate regimes. At the regional level, it is shown that the exchange rate targeting regime leads to a stability of intra-regional bilateral exchange rates, which is a sort of fixity of exchange rates similar to a “de facto currency area”. In the context of a liquidity trap, we find that, contrary to common belief during the Euro area crisis, the currency union welfare dominates the independent floating regime. Only a central bank intervention in the form of a managed float policy could allow the independent floating to outperform the monetary union.Through both the empirical and theoretical analyses of the liquidity trap effects on currency misalignments, it is shown that the ZLB constraint tends to reduce currency misalignments compared with the independent floating policy. This suggests a reinforcement of the monetary integration within a monetary union during the liquidity trap

This dissertation aims to illustrate the impact of the Zero Lower Bound (ZLB) on nominal interest rates, based on a deterministic simulation of Fernández-Villaverde and Rubio-Ramírez’ (2006) DSGE model of the U.S. economy. I calibrate the model for 2 different steady states, the first based on historical data (old steady state) and the second matching the most recent data, with lower inflation and lower real interest rates (new steady state). Within these calibrations I simulate the impact of a set of representative shocks. The ZLB appears to be of minor relevance in the old steady state while it is found to be a significant constraint in the new steady state. The associated impact on activity is relatively small but not negligible. My results are robust assuming alternative monetary policy rules. Hence, I conclude that conventional monetary policy tools are insufficient to anticipate the increased risk of hitting the ZLB in the new steady state. Further analysis of the exact transmission mechanism is warranted due to the simplified assumptions underlying this dissertation.
Esta dissertação pretende ilustrar o impacto do limiar inferior das taxas de juros nominais (ZLB), com base numa simulação determinística do modelo DSGE para os EUA apresentado em Fernández-Villaverde e Rubio-Ramírez (2006). O modelo é calibrado para 2 estados estacionários, o primeiro com base em dados históricos (antigo estado estacionário) e o segundo com base em dados recentes, caracterizados por uma menor inflação e taxas de juros reais mais baixas (novo estado estacionário). Com base nesta calibrações, é simulado o impacto de um conjunto de choques representativos. O ZLB parece ser de menor relevância no antigo estado estacionário enquanto se verifica ser uma restrição significativa no novo estado estacionário. O impacto associado na atividade é relativamente pequeno, mas não negligenciável. Os resultados são robustos a regras de política monetária alternativas. Assim, concluo que os instrumentos convencionais de política monetária são insuficientes para evitar o maior risco de atingir o ZLB no novo estado estacionário. Mais investigação sobre o mecanismo de transmissão monetária próximo do ZLB é necessário, dadas as hipóteses simplificadoras subjacentes a esta dissertação.

The thesis focuses on estimating the effect of expansionary monetary policy concerning asset prices, specifically house and stock prices as they are of pri- mary importance in financial markets. A structural vector autoregressive model is used including data for the Euro Area, the United Kingdom, and the United States from 2007 to 2017. Moreover, instead of short-term nominal interest rate, the shadow policy rate is used to measure the stance of both conventional and unconventional monetary policy. It is useful when policy rates of central banks are at or near zero as it neglects the zero-lower bound. Using both impulse response functions and forecast error variance decomposition, results suggest that higher interest rates are indeed associated with lower asset prices. That is confirmed by including two different estimates of shadow rates into the model and observing the effect for two specific types of assets. More precisely, house prices react almost immediately showing the most substantial decrease for the United Kingdom, while stock prices slightly increase at first and de- crease afterward with similar size of the effect for all areas under consideration. Finally, the discussion of how the monetary authority should react to asset price fluctuations is provided, summarizing the vast amount of literature...

In June 2014, the ECB’s decision to cut its deposit facility rate (DFR) to -10 b.p. broke with the idea of an unsurpassable zero lower bound. At this level, people would convert deposits into cash to escape nominal devaluation. This new unconventional monetary policy’s impact on bank profitability is being extensively studied, without no full consensus being reached yet. We assess the Negative Interest Rate Policy (NIRP) effects on bank profitability, using a panel dataset of 143 Euro Area listed banks over the period from 2005 to 2019. This study employed a panel data linear regression analysis using relevant income components (Net Interest Income (NII), Net Non-interest Income (NNI), and Loan Losses Provisions (LLP) as a ratio to Total Assets) and the overall profitability (ROA) as measures of bank profitability. The results show a benign impact of NIRP on ROA, suggesting a lowering of LLP and an increase in NNI weighting a deteriorating effect on NII. Additionally, we show some evidence in favor of high-deposit banks being more vulnerable to the NIRP since they are reluctant to pass on these rates to retail depositors.
Em junho de 2014, a decisão do BCE de diminuir a taxa de facilidade permanente de depósito para -10 p.b. quebrou a ideia de um limite inferior zero insuperável. A este nível, as pessoas iriam converter os seus depósitos em dinheiro para escapar à desvalorização nominal. O impacto desta política não convencional na rendibilidade bancária tem sido extensivamente estudado, sem nenhum consenso completo ter sido atingido ainda. Nesta dissertação são avaliados os efeitos da Política de Taxa de Juro Negativa (PTJN) na rendibilidade bancária, usando um conjunto de dados painel de 143 bancos cotados da Área Euro de 2005 a 2019. Neste estudo aplicou-se uma regressão linear de dados painel usando as componentes de rendibilidade relevantes (margem financeira (MF), margem complementar (MC) e provisões para perdas com empréstimos (PPE) como rácio para o Total de Ativos) e a rendibilidade total (Retorno sobre Ativos) como medidas de rendibilidade bancária. Os resultados confirmam um efeito benigno da PTJN na rendibilidade, sugerindo uma diminuição das PPE e um aumento da MC a compensar o efeito deteriorante na MF. Adicionalmente, é mostrada alguma evidência de que os bancos mais financiados por depósitos são mais vulneráveis à PTJN, pois hesitam em passar estas taxas aos depositantes.

The paper examines the hypothesis that the devaluation of the domestic currency leads to the higher exchange rate pass-through at the zero lower bound since the interest rate channel cannot offset effects of the depreciation in that situation. Time-varying vector autoregression with stochastic volatility is used to identify the development of the pass-through. The hypothesis is tested on the Czech dataset because the Czech Republic is considered as the prototypical small open economy with inflation targeting. The assumption of higher pass-through to consumer prices at the zero lower bound is rejected. Obtained results confirm that the deprecation stimulates output growth slightly more when the interest rate is close to zero. Our estimations imply that the exchange rate commitment of the Czech National Bank increased the price level by 0.116 % and contributed to the output growth by 0.781 %.

This dissertation consists of three research papers dealing with selected issues relevant for central banks after the global financial crisis. The post-crisis world has seen a significant strengthening of the role of central banks with regard to the financial system as well as the real economy. Correspondingly, agendas of some central bankers have grown substantially, encompassing among others monetary policy, financial stability (macro- and microprudential policies) as well as resolution mechanisms. This dissertation thesis reflects the broad focus of some contemporary central banks in three original research articles that concern current unexplored issues for monetary policy and financial stability in the European Union, the Czech Republic, and the United States, potentially bringing policy implications for the relevant authorities. The first article analyzes inflation convergence in the whole European Union (EU) over 1999-2017 and provides comprehensive and robust evidence that the process of inflation convergence among the countries of the EU was not permanently disrupted during the global financial crisis, the European sovereign debt crisis, or the period of zero lower bound interest rates. Specifically, the convergence process did not noticeably weaken after the crisis and the occurrence of...