Dampening the financial accelerator? Direct lenders and monetary policy

( < 1 min) by Rashad Ahmed, Claudio Borio, Piti Disyatat and Boris HofmannAre there limits to how far reductions in interest rates can boost aggregate demand? In particular, as interest rates fall to very low levels, does the effectiveness of monetary policy in boosting the economy wane? We provide evidence consistent with this hypothesis. Based on a panel of 18 advanced countries starting in 1985, we find that monetary transmission to economic activity is substantially weaker when interest rates are low.

( < 1 min) by Claudio BorioThe concept of the natural rate of interest, or r-star (r*), has risen to prominence in monetary policy following the Great Financial Crisis. No doubt a key reason for the concept’s newfound prominence has been the further decline of real and nominal interest rates to new lows, which has further constrained monetary policy’s room for manoeuvre. This lecture explores the extent to which the concept can be a useful guide to policy. It concludes that, depending on how it is employed, the concept has the potential of leading policy astray and of complicating the task of regaining the needed policy headroom.

( < 1 min) by Claudio BorioThe central banking community is facing major challenges – economic, intellectual and institutional. A key economic challenge is the need to rebuild room for policy manoeuvre, which has fallen drastically over time. This lecture focuses on the intellectual challenge, ie facts on the ground are increasingly testing the longstanding analytical paradigms on which central banks can rely to inform their policies. It argues that certain deeply held beliefs underpinning those paradigms can complicate the task of regaining policy headroom.

( < 1 min) by Emanuel KohlscheenThis paper examines the drivers of CPI inflation through the lens of a simple, but computationally intensive machine learning technique.

( < 1 min) by Ryan Niladri Banerjee and José María Serena GarraldaIn this paper we investigate the role they play in the monetary policy transmission mechanism, using syndicated loan data covering the 2000-2018 period.

( < 1 min) by Sebastian Doerr, Stefan Gissler, Jose-Luis Peydro and Hans-Joachim VothDo financial crises radicalize voters? We study Germany’s 1931 banking crisis, collecting new data on bank branches and firm-bank connections.

( < 1 min) The structure of market making in government bond markets has shifted from a bank-centric model to a hybrid one in which non-bank financial institutions, notably principal trading firms and hedge funds, play an important role alongside banks. This shift has occurred in several countries and, while farthest advanced in liquid segments, is also evident in less liquid segments.