E51 - Money Supply; Credit; Money MultipliersReturn

The active participation of the central bank in exchange rate management has accelerated the growth of foreign exchange reserve in India. The massive reserve stockpiling has substantially contributed to apprehensions about excess liquidity in the domestic economy. The extent to which these concerns are justified depends on the degree to which the central bank is able to mitigate its effects on monetary aggregates. This study is an attempt to assess the magnitude of the sterilization coefficient by using quarterly data from 1996 to 2019. In order to estimate sterilization and offset coefficients, the study employed the two-stage least squares (2SLS) method under the theoretical framework of simultaneous equation modelling. The findings show that the reserve accumulation through central bank interventions puts pressure on money supply. However, the RBI sterilization policy was effective as the central bank was able to sterilize 93 percent of its interventions, while the offset coefficient was 72 percent during the period of study. The low value of the offset coefficient compared to the sterilization coefficient indicates a high degree of monetary policy independence in neutralizing the central bank's purchase interventions. Based on the findings, it can be recommended that policymakers should consider the sustainability of interventions and sterilization operations as the dual policy objectives of independent exchange rate management and monetary policy cannot be achieved in the presence of a high interest rate in an inflation-targeting regime.

The present study focuses on the analysis of systemic risk in the American and European financial systems for the period from 20 August 2004 to 28 February 2014. The global crisis in 2007 has brought attention to the urgent need to understand the systemic risk issues and the stability of financial systems along with their actors. To assess systemic risk, Adrian and Brunnermeier (2011) advocated the use of conditional value-at-risk (CoVaR) methodology in integrating quantile regression. Instead of the value-at-risk (VaR), which is unable to detect systemic risk, we seek to use the CoVaR methodology to calculate the systemic risk levels of the United States and European markets. In the light of related findings, we conclude that the insurance sector contributes most to the systemic risk in the USA, while in the Eurozone, it is the financial services sector that is highly interconnected with systemic risk.

The aim of this paper is to examine the relationship between inflation and income inequality. The article is mainly theoretical, but considerations presented are illustrated by relevant empirical data. Based on our analysis, we claim that inflation, which accelerated after the collapse of the Bretton Woods system in 1971, could have contributed to the rise in income inequality in the USA since the 1970s. Our article transcends the simple notion of an inflation tax and focuses on other redistributive mechanisms of inflation (Cantillon effect) as one of the main causes of income inequality.

The influence of foreign banks on a host country's lending depends on several factors, including the policy of the parent bank, the strategy of entry, economic cycles in the home country and abroad, growth prospects, the indebtedness of commitments and the capital adequacy of the parent bank. During the most recent economic crisis, the credit supply of foreign banks in the 10 new European Union (EU) Member States has not remained stable in the crisis. More specifically, we find evidence that foreign banks have cut the credit supply slightly in the new EU Member States.

This paper empirically examines the possible causal relationship between financial development and economic growth in Serbia. In this regard, the focus is on the development of financial intermediation by banks, considering the fact that the banking sector plays an important role in Serbian financial system. The empirical research is based on quarterly data for the period Q1 2004-Q4 2011 by using Toda-Yamamoto causality test. Our empirical findings suggest that process of economic growth contributes to process of financial deepening. On the other hand, the results indicate that there is a significant unidirectional causality that runs from both private enterprise credit to GDP and household credit to GDP to economic growth. Bidirectional causal relation is confirmed only between the share of bank credit to nonfinancial private sector in total domestic credit and economic growth rate.

Central banks do not seem to account for the impact of interest rates close to zero on the natural interest rate after the bursting of the asset bubble that triggered the financial crisis in 2008. We claim that this omission may have harmful consequences. Should interest rates close to zero persistently decrease natural interest rates that would mean a fall in TFP growth and more limited central bank's capacity to influence aggregated demand and price dynamics. We explain that interest rates close to zero may persistently reduce the natural interest rate because in the economy, requiring post-crisis restructuring, they impede the process of restructuring and facilitate forbearance lending, which crowds viable economic agents out of credit through a number of channels. To reduce these risks, the central bank could voluntarily set a lower bound for interest rates cuts at, for instance, 2%. The boundary appropriate for a given economy should be a function of its growth rate and interest rates in the pre-crisis period. We argue that irrespectively of the central bank's credibility such a change in the monetary policy conducting in economies requiring post-crisis restructuring would bring better outcomes than keeping interest rates close to zero.

The article is aimed at empirical investigation of the relative version of the purchasing power parity (PPP). It attempts to shed some light on the so-called 'PPP puzzle' for selected countries in the CEE region and Turkey. Because of ambiguous results in the literature, various econometrics methods are employed: univariate tests (URTs: ADF, PP, KPSS, DF-GLS), robust URTs including nonlinear URTs (Kapetanios and Sollis' and Bierens' test) and tests allowing for (multiple) structural breaks (Perron, Lee and Strazicich). The euro currency pairs (bilateral) of 10 European transition countries covering the period 1995:1-2011:1 are utilized. Our results for conventional linear (such as ADF or PP test) do not provide a crystal-clear answer, more robust URTs at least partially do, once the source of nonlinearities has been controlled for (structural changes, non-zero adjustment costs). Nonlinear tests with structural breaks provide more convincing evidence in favour of the PPP hypothesis including asymmetrical effects of exchange rate adjustments.

This paper assesses whether the legal independence granted to the Central Bank of Egypt (CBE) by the latest legislation promulgated in 2005 is factual. The author followed Fry's methodology, which assumes that the level of independence of the central bank is determined by fiscal attributes. In an attempt to develop Fry's method, there was used a simple criterion to assess the central bank's independence, namely, that the central bank is actually independent if it can fulfill its money supply target without squeezing the private sector. Applying this criterion to the case of the CBE, we find that the legal independence granted to the CBE by the latest legislation is not factual.

The paper examines the cross-country relations between nominal money and real output between 1990 and 2000. Both high money growth rates and declines in money are connected with below-average output growth rates. The association between the monetary base and real output is weaker than between M1 (or M2) and real output. I observe no tendency of money changes to precede output changes.