What Is the European Central Bank Supposed to Do?

In July 2021, the European Central Bank (ECB) published a new monetary policy strategy, the first time in 17 years that it had undertaken a review of its monetary policy. In the intervening time, the world - and the economic challenges facing the ECB - have changed immensely but partly as a result of the ECB's own maneuvering. In particular, monetary policy has been relied upon for every single malaise facing the global economy, including and up to the coronavirus pandemic. This paper argues that a review of central banks as an institutional mechanism in general, and in particular the ECB, was overdue but should not have been limited to policies;instead, an opportunity was missed to have an institutional review to examine whether or not it has been performing as intended. In particular, the vast experiment of unconventional monetary policy/issuance should have been more scrutinized from an institutional level as it appears to have contributed to the current problems the European economy faces. Europe and the ECB would be well served by taking stock of its actions over the past two decades and especially during the era of unconventional monetary policy to find a sustainable route forward.

Central bank credibility during COVID-19: Evidence from Japan

Japanese realized and expected inflation has been below the Bank of Japan's two percent target for many years. We examine the impact of announcements of expansionary monetary and fiscal policy under COVID-19 on inflation expectations from an arbitrage-free term structure model of nominal and real yields. We find that both types of policies failed to lift inflation expectations, which instead declined notably over the pandemic period and are projected to only slowly revert back to Bank of Japan target levels. Our results therefore illustrate the challenges faced in raising well-anchored low inflation expectations. © 2022

Shipping costs and inflation

The Covid-19 pandemic has disrupted global supply chains, leading to shipment delays and soaring shipping costs. We study the impact of global shipping costs—measured by the Baltic Dry Index (BDI)—on domestic prices for a large panel of countries during the period 1992–2021. We find that spikes in the BDI are followed by sizable and statistically significant increases in import prices, PPI, headline, and core inflation, as well as inflation expectations. The impact is similar in magnitude but more persistent than for shocks to global oil and food prices. The effects are more muted in countries where imports make up a smaller share of domestic consumption, and those with inflation targeting regimes and better-anchored inflation expectations. The results are robust to several checks, including an instrumental variables approach in which changes in shipping costs are instrumented with an indicator of closures of the Suez Canal. © 2022

Evaluating economic recovery by measuring the COVID-19 spillover impact on business practices: evidence from Asian markets intermediaries

The COVID-19 outbreak significantly affected the global economy and energy markets. To mitigate the shock, maintain financial market stability, and encourage economic recovery, this study investigates the influence of post-COVID-19 on monetary policy transmission to business practices and financial market indicators for green economic recovery. We utilised 37 Asian markets' panel data from 1 January 2020, through 30 December 2020. The empirical findings demonstrate that the pandemic's emergence impeded monetary policy transmission, business practices, and financial markets. Our empirical contribution is to examine the size, sectoral allocation, and implementation options of three leading countries' (China, Japan, and Thailand) green recovery spending plans, which range significantly. However, this effect mainly affects the medium-and-long-term effects, and short-term spillover effects are primarily unaffected by Asian monetary policy uncertainty. Our findings have significant implications for green economic recovery among market players and regulators in the Asian market.

Pandemic meltdown and economic recovery – A multi-phase dynamic model, empirics, and policy

In this paper a two-phase pandemic-economic model is proposed, with phase-specific modeling and policy variables – as suggested by the chronicle of pandemic and economic policy developments over the period 2020–2021. In a first phase, the spread of a pandemic disease is the primary concern of authorities, that still also pay attention to economic activity. A dynamic model is introduced, embedding a two-way interaction between an extended epidemic Susceptible-Infected-Recovered (SIR) model and output gap dynamics. In the second phase, posterior to lockdowns when waves fade away, monetary policy becomes the control variable, pursuing again a joint objective, of supporting a non-inflationary recovery without causing significant fatalities. We then use a standard stylized model for the macroeconomy with simplified infection dynamics, that also enter the policy objective. The two phases are thus studied in a regime change model where the control and state variables as well as the objective function are allowed to change across phases. We solve the model over a finite horizon and derive the optimal lockdown or monetary policy path that jointly minimizes pandemic and economic losses. The two-phase finite horizon decision model is empirically calibrated and numerically solved by discretization and optimization methods. In the first phase, albeit with lasting adverse effects on output, lockdown-based control can be effective in reducing infection rates, but less so when starting from a negative output gap. In the second phase, accommodative monetary policy appears to be effective on both fronts, with even an eventual need for a return to tightening as output gap closes and inflation resumes. © 2022 The Author(s)

Post-Pandemic Greenness? How Central Banks Use Narratives to Become Green

Suggested only a few years ago, green central banking has received a new impetus with the central bank interventions implemented in the wake of the COVID-19 pandemic. Several central banks, with the European Central Bank (ECB) and the Bank of England (BoE) being prominent examples, have stepped up their public communication on this issue in an effort to explain and justify their planned or ongoing policy actions. Carefully recorded and easy to find, these public communication messages are a rich source of insight into the process of monetary policy formation. In this article, we analyze the messages from two central banks, with the primary objective of identifying the narratives they use (if any) and describing the key features of these narratives, thus shedding new light on an ongoing process of policy change. A secondary objective of the article is to contribute to the growing literature related to the use of narratives in public policy by studying narratives in monetary policy through qualitative means, an approach that, to date, has received relatively little attention from scholars. To this end, we discuss two expectations related to the use of policy narratives derived from the literature. Thus, we hope to show how the two central banks devise and deploy narratives to help implement an unprecedented turnaround in monetary policy. © 2023 by the authors.

The impact of Bank of Japan's exchange-traded fund purchases

The Bank of Japan (BOJ) enhanced its large-scale asset purchases in October 2010 by purchasing equity exchange-traded funds (ETFs). This study is the first to demonstrate that the BOJ provides downside protection for stock prices through the countercyclical purchase of ETFs. The BOJ responds to a large negative stock return during the overnight and morning periods, and submits purchase orders during lunchtime. Using the BOJ's March 2020 announcement of doubling the annual purchase amount during the COVID-19 pandemic, this study also finds that the announcement effect is small and temporary. In contrast, the flow effect of the actual purchases is significant and increases. The BOJ's countercyclical ETF purchase prevents equity risk premia from rising during an economic downturn. © 2023 Elsevier B.V.

The COVID-19 pandemic and financial markets in Central Europe: Macroeconomic measures and international policy spillovers

This paper investigates the effects of macroeconomic policy announcements on financial markets in three Central European economies: Czechia, Hungary, and Poland (CE-3). We focus on the unprecedented stabilisation policies implemented from March to December 2020 during the COVID-19 pandemic, including unconventional monetary measures and large stimulus programs. Detailed categories of monetary and fiscal measures are introduced into vector autoregressions with exogenous regressors and dynamic conditional correlations, which we estimate using daily data. This allows us to control for policy spillovers from abroad, as well as global risk factors and pandemic-related variables. We find that, in general, macroeconomic policy measures implemented in the CE-3 countries played an important role in stabilising financial markets during the pandemic. We uncover several notable patterns in the reaction of markets to anti-crisis measures across the region. The impact of the monetary policy announcements on 10-year sovereign bond yields was more substantial than on stock market returns and exchange rate returns. The communication of the unconventional tools proved effective in lowering the bond yields. Interestingly, we document that the effects of non-standard measures for some variables, such as the exchange rate, can be qualitatively different from those resulting from a conventional monetary expansion. Even though the domestic monetary events became more important than the fiscal ones, the latter proved relevant for financial market returns, especially when large-scale immediate fiscal measures and tax deferrals were introduced. We also show that the CE-3 economies were subject to the cross-border transmission of policy announcement effects from the Euro Area and the US, although the magnitude of these effects was smaller than expected and varied across the CE-3 countries.

ASSESSMENT OF THE IMPACT OF THE COVID-19 PANDEMIC ON THE FINANCIAL PERFORMANCE OF COMPANIES IN THE PHARMACEUTICAL FIELD IN ROMANIA

Performanţa financiară a unei societăţi comerciale este dependentă de o multitudine de factori, care pot fi grupaţi în factori de natură externă şi factori de natură internă. Prin studiul desfăşurat am încercat să analizăm influenţa unor factori externi specifici perioadei de pandemie COVID -19 asupra performanţei financiare a unor societăţi comerciale din domeniul fabricării produselor farmaceutice de bază din România (Antibiotice), a preparatelor farmaceutice (Biofarm, Zentiva) a activităţi de asistenţă medicală ambulatorie (Med Life). Aceste societăţi comerciale s-au confruntat cu condiţiile perioadei pandemice COVID-19, cu măsurile luate în acest sens, precum şi cu concurenţa acerbă din partea unor producători internaţionali (Sanofi, Sandoz Romania, Hoffmann la Roche, Pfizer etc. ). Astfel, unele societăţi comerciale din domeniul fabricării produselor farmaceutice şi-au redus volumul de activitate, iar altele au înregistrat o performanţă mult superioară perioadei prepandemice.Alternate :The financial performance of a commercial company is dependent on a multitude offactors, which can be grouped into external factors and internal factors. Through the conducted study, we tried to analyze the influence of external factors specific to the period of the COVID-19 pandemic, on the financial performance of some commercial companies in the field of manufacturing pharmaceutical products in Romania (Antibiotice) pharmaceutical preparations (Biofarm, Zentiva) ambulatory healthcare activity (Med Life). These commercial companies faced the conditions of the COVID-19 pandemic period, the measures taken in this regard, as well as the fierce competition from some international manufacturers (Sanofi, Sandoz Romania, Hoffmann la Roche, Pfizer, etc.). Thus, some commercial companies in the field of manufacturing pharmaceutical products have reduced their volume of activity and others have performed much higher than the pre-pandemic period.

Fiscal risks and their impact on banks' capital buffers in South Africa

South Africa's fiscal balances have deteriorated significantly over the last decade, although the economy has been recording disappointing economic growth rates even prior to the COVID-19 crisis. In this paper, we estimate a series of equations to test how sovereign risk premia affect capital buffers, while controlling for variables identified in the literature, such as size of banks and the economic cycle. Unlike other studies, we use actual capital buffers. We show that these are substantively different to the proxy buffers calculated using the common approach in the literature, indicating that results based on proxy measures should be interpreted with caution. Our overall results show a positive relationship between the sovereign risk premium and capital buffers. This suggests that banks are accumulating capital to mitigate against fiscal and other domestic policy risks. It is likely that this is contributing to higher lending rates.

Exchange rate spillover, carry trades, and the COVID-19 pandemic.

Although it is widely accepted that exchange rates are connected, what drives these connections remains an unsettled question. We examine the interconnections and spillovers of G10 currencies over the period from January 1, 2018 to June 17, 2021. We find that the Euro and Australian dollar serve as risk transmitters whereas the Japanese yen operates as a risk recipient. During the COVID-19 pandemic period, countries with higher infection cases experience currency depreciation and transmit more currency risk to others. In response to this crisis, the Fed adopted the large-scale asset purchase program that weakened the USD and increased the demand for high-yield currencies through the portfolio rebalancing channel. The appreciation of high-yield currencies further attracts carry trades and enhances their risk transmission to low-yield currencies. Furthermore, we provide evidence to show that the COVID-19 infection cases, the Fed's policy, and carry trades are crucial determinants of exchange rate spillovers.

Impact of Inflation in Different States of Unemployment: Evidence with the Phillips Curve in South Africa from 2008 to 2022

This paper investigates the impact of inflation in different states of unemployment: evidence with the Phillips curve in South Africa. The contribution of this paper is to examine the impact of inflation on different states of unemployment in South Africa. The Paper employs Markov-switching dynamic regression and data from 2008 to 2022. It was found that there are 2 states of unemployment mean rates of 25.55% and 33.59%, expected to run for 67 and 7 quarters, respectively. There is a 98.51% and 86.99% chance of a move and then returning to the same state, respectively. In states 1 and 2, a 1% increase in inflation results in a 2.61% increase and a 0.06% decrease in unemployment, respectively. There are times when the Phillips curve rationale is not holding. The government needs to increase the channels of employment opportunities. There is a need to re-look at the trade-offs between inflation and unemployment in the economy.

Measuring the impact of Wuhan's COVID-19 lockdown on the growth enterprise market in China

The outbreak of COVID-19 had a huge impact on the financial market. As a new growth point in China, it's necessary to study how SMEs (small and medium-sized enterprises) represented by listed companies on the GEM (growth enterprise market) can withstand sudden shocks. This paper examines the impact of Wuhan's COVID-19 lockdown on the financial markets based on the data of GEM listed companies and the method of event analysis. The results show that investors had a great response to epidemic related news. Compared with the interest rate cut policy, the targeted RRR reduction policy had a more significant positive influence on the financial markets. Furthermore, in the early stages of COVID-19, there was not a significant effect of distance on the firms' CARs (cumulative abnormal returns). In an improving epidemic environment, the farther the firms were from Wuhan City, the more positive the impact on their CARs would be. This paper provides new evidence and important enlightenment for preventing the impact of public health emergencies on the GEM market and highlights the significance of developing digital inclusive finance, which can mitigate regional risk and financing issues. Copyright © 2023 Wang, Huang and Wang.

Shadow rates as a measure of the monetary policy stance: Some international evidence

This paper examines the usefulness of shadow rates to measure the monetary policy stance by comparing them to the official policy rates and those implied by three types of Taylor rules in both inflation-targeting countries (the UK, Canada, Australia and New Zealand) and others that have only targeted inflation at times (the United States, Japan, the Euro Area and Switzerland) over the period from the early 1990s to December 2021. Shadow rates estimated from a dynamic factor model are shown to suggest a much looser policy stance than either the official policy rates or those implied by the Taylor rules, and generally to provide a more accurate picture of the monetary policy stance during both ZLB and non-ZLB periods, since they reflect the full range of unconventional policy measures used by central banks. Furthermore, generalised impulse response analysis based on three alternative vector autoregression (VAR) models indicates that monetary shocks based on the shadow rates are more informative than those related to the official policy rates or to two- and three-factor shadow rates, especially during the Global Financial Crisis and the recent COVID-19 pandemic, when unconventional measures have been adopted. Finally, unconventional policy shocks seem to have less persistent effects on the economy in countries, which have adopted an inflation-targeting regime. © 2022 The Authors. Scottish Journal of Political Economy published by John Wiley & Sons Ltd on behalf of Scottish Economic Society.

Cross-Border Portfolio Investment Inflows to Emerging Countries: Enhanced Dominance of Local Factors amid the COVID-19 Pandemic

Analysing the determinants of cross-border portfolio investment inflows to 17 emerging countries in 2012–2020, this study supports a global financial cycle hypothesis stressing the dominant role played by global factors in those inflows. In the amidCOVID-19 period of 2020, such dominance decreased mainly through global real business factors. The relative dominance of local factors increased then. Increases of short-term interest rates and mitigations of sovereign risks in the countries were more greatly associated with discouraging global investors from selling local securities in the pandemic period than before. © 2022, AfricaGrowth Institute. All rights reserved.

Economic stimulus measures in the pandemic: the role of fiscal decentralisation

Is fiscal federalism associated with economic policy responses and stimulus measures adopted by national and sub-national governments to mitigate the adverse economic effects of the COVID-19 pandemic? In this paper, we provide empirical evidence that it indeed is. Our results indicate that even after controlling for various relevant factors, countries with fiscally federal (decentralised) governments have adopted larger fiscal and macro-financial policy packages (as a percent of GDP). However, there are no significant differences in monetary-policy responses between centralised and decentralised governments. We also show that these results are robust to using different federalism measures, including different sets of control variables and different econometric specifications that include an instrumental variable estimation.

Monetary Policies and Financial Stress During the COVID-19 Pandemic: An Event Study Analysis

Using an event study design, this paper examines the effects of announcements of financial policies, especially monetary policies, on a measure of financial stress in some advanced and emerging economies during the COVID-19 pandemic period. We construct a daily financial stress index for 15 countries during the period from April 1, 2019 to September 30, 2021 . Our results show that announcing financial policies of any type increased financial stress on the day the policy was announced but the effect faded away rather quickly. Moreover, different types of financial policy announcements had different effects on the financial stress subindices. We also find that each component of financial stress responds to the announcement of financial policies differently and announcements of financial policies affect financial stress in most of the countries in our sample, but to different degrees.

Teaching an undergraduate elective on the great recession (and the COVID-19 recession too)

The authors describe an undergraduate economics elective focused on the Great Recession and the recession resulting from the COVID-19 pandemic. They have taught the course with great success at both liberal arts colleges and research universities and at all levels of the curriculum ranging from a first-year seminar to an upper-level elective. They present a roadmap for instructors interested in offering the class. Although intermediate macroeconomics is assumed as a prerequisite, the authors discuss how they have adapted the class for students with different backgrounds. The course is divided into seven units: the housing bubble and asset pricing, housing policy and history, propagation and panic, monetary policy, fiscal policy, aftermath and international perspectives, and the macroeconomics of COVID-19. Sample assignments and readings are both provided.

Supervisory forward guidance: the effectiveness of the 2020 euro area supervisory capital relief on the bank credit supply channel

We investigate the effectiveness of the euro area's single supervisory mechanism's capital relief measures in response to the outbreak of the coronavirus pandemic, in terms of large non-financial corporations' lending outcomes. Using a granular borrower level dataset and controlling for the policies of other euro area authorities, bank characteristics and demand effects, we find that the lifting of the pillar 2 guidance (P2G) capital recommendation had a considerable statistically significant impact in supporting bank credit supply. The results are attributed to both, the capital made available and announcement effects. The latter are generated by the communication of supervisory plans and the fact the P2G was not designed to be ex ante "releasable ". The announcement of granted supervisory flexibility seems to have reduced uncertainty surrounding forthcoming regulatory responses in the beginning of the pandemic and acted as a de facto "supervisory forward guidance " in support of bank business decisions. Going forward we propose the creation of a formal supervisory forward guidance strategy, to complement the existing communication channels, to the benefit of banks' and market participants' decision making during both normal and crisis times. Our work therefore contributes to the literature threefold: (i) it introduces a novel granular supervisory dataset at the borrower level, (ii) it is one of the first papers to take a euro area supervisory perspective in analysing the effectiveness of capital relief measures at the onset of the Covid-19 pandemic, and (iii) it proposes a new supervisory policy instrument, the "supervisory forward guidance " with the goal of informing and steering banks' and market participants' expectations in order to prevent distress episodes.

The Impact of Bank of Japan's Exchange-Traded Fund Purchases

The Bank of Japan (BOJ) enhanced its large-scale asset purchases in October 2010 by purchasing equity exchange-traded funds (ETFs). This study is the first to demonstrate that the BOJ provides downside protection for stock prices through the countercyclical purchase of ETFs. The BOJ responds to a large negative stock return during the overnight and morning periods, and submits purchase orders during lunchtime. Using the BOJ's March 2020 announcement of doubling the annual purchase amount during the COVID-19 pandemic, this study also finds that the announcement effect is small and temporary. In contrast, the flow effect of the actual purchases is significant and increases. The BOJ's countercyclical ETF purchase prevents equity risk premia from rising during an economic downturn.