Central banks

FEDS Paper: Refining the Definition of the Unbanked

Elena Falcettoni and Vegard Mokleiv NygaardWe propose a new way to classify individuals without a bank account, accounting for their actual interest in being banked. Analogous to how unemployment statistics are defined and estimated, we differentiate the individuals that do not have a bank account and would like to have one (the “unbanked”) from individuals that do not have a bank account and are not interested in having one (the “out of banking population”).

IFDP Paper: Optimal Credit Market Policy

Matteo Iacoviello, Ricardo Nunes, and Andrea PrestipinoWe study optimal credit market policy in a stochastic, quantitative, general equilibrium, infinite-horizon economy with collateral constraints tied to housing prices. Collateral constraints yield a competitive equilibrium that is Pareto inefficient. Taxing housing in good states and subsidizing it in recessions leads to a Pareto-improving allocation for borrowers and savers.

Bank lending rates and the riskiness of euro area household loans

I assess the impact of the recent hike in bank lending rates on euro area retail borrowers using a novel microsimulation framework that updates household-level data of a recent representative survey with up-to-date macro-financial information. The key novelty is that existing mortgages are gradually repaid, and new ones are extended, a feature necessary for medium-term simulations in a period of sizable credit growth. Since lending rates have increased, debt servicing has become more demanding, and the simulated share of distressed loans has increased.

Beware of large shocks! A non-parametric structural inflation model

We propose a novel empirical structural inflation model that captures non-linear shock transmission using a Bayesian machine learning framework that combines VARs with non-linear structural factor models. Unlike traditional linear models, our approach allows for non-linear effects at all impulse response horizons. Identification is achieved via sign, zero, and magnitude restrictions within the factor model. Applying our method to euro area energy shocks, we find that inflation reacts disproportionately to large shocks, while small shocks trigger no significant response.

The 2021-24 inflation surge through the lens of the ECB-BASE model

The start of Russia’s war on Ukraine in early 2022 led to major errors in inflation and GDP growth forecasts from December 2021 onwards. By the end of 2022 inflation projections were off by 8 percentage points and GDP projections by nearly 1 percentage point. Using the ECB-BASE model, this study finds that about 70% of the inflation error stemmed from unexpected energy and food price shocks. Energy prices were the main drivers in 2022, while food prices gained influence in 2023. Fiscal policies initially eased inflation but later this effect was reversed.

Introducing statistical in-house credit assessment systems (S-ICASs) as an additional source of credit assessments under the general collateral framework

The statistical in-house credit assessment systems (S-ICASs) of the national central banks of the euro area are quantitative systems which can assess the credit quality of a large number of small and medium-sized enterprises in an automated manner. These can help broaden the set of eligible credit claims accepted as collateral in monetary policy operations.

Challenges to the resilience of US corporate bond spreads

This box examines the drivers behind the prolonged resilience of US corporate bond spreads, prior to their recent abrupt widening, in order to better understand the risks of decompression. The previous compression was largely supported by a strong risk appetite and a compositional shift in bond issuance toward higher-quality firms. However, the need to refinance maturing debt in a high-interest rate environment – combined with a rapidly deteriorating risk sentiment – exposes US corporates to heightened vulnerability and increases their sensitivity to adverse shocks.

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