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In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.

Bank loans --- Interest rates --- Bank loans. --- Bank credit --- Loans --- Money market rates --- Rate of interest --- Rates, Interest --- Interest --- Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- Central Banks and Their Policies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Price Level --- Inflation --- Deflation --- Banking --- Monetary economics --- Finance --- Asset prices --- Negative interest rates --- Bank deposits --- Prices --- Financial institutions --- Monetary policy --- Central bank policy rate --- Financial services --- Banks and banking --- Japan

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Advanced economies made available more than 5 trillion USD through government-supported credit guarantee and direct loan programs to provide lifelines to firms in the face of the COVID-19 pandemic. Notwithstanding the unprecedented scale of credit made available, an in-depth analysis of the fiscal consequences is missing, and the costs of these programs are not recognized in a transparent way. In this paper, we fill in an important aspect of the fiscal picture by estimating the subsidies that were provided by the largest credit guarantee programs introduced in 2020 in seven advanced economies. We estimate the subsidies on a fair value basis that provides a consistent and comprehensive upfront measure of cost. We explain the logic behind applying a fair value framework in a government context and compare it to alternative approaches. For the programs that we examine, total credit extended totaled 1.7 trillion USD. The subsidy element (cash-equivalent subsidy) is estimated to be 67 percent of loan principal on average (37 percent, excluding the US PPP), with a wide range across programs, from 12 to 100 percent. The variation is explained by differences across programs including eligibility criteria, loan terms, compensation to lenders, and other program design choices.

Macroeconomics --- Economics: General --- Industries: Financial Services --- Money and Monetary Policy --- Diseases: Contagious --- Banks and Banking --- Public Economics: General --- Fiscal Policies and Behavior of Economic Agents: General --- Publicly Provided Goods: General --- National Government Expenditures and Related Policies: General --- National Budget, Deficit, and Debt: General --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Governmental Loans, Loan Guarantees, Credits, and Grants --- Health Behavior --- Interest Rates: Determination, Term Structure, and Effects --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- Monetary economics --- Infectious & contagious diseases --- Credit --- Money --- Loans --- Financial institutions --- Loan guarantees --- COVID-19 --- Health --- Discount rates --- Financial services --- Currency crises --- Informal sector --- Economics --- Communicable diseases --- Discount --- Germany

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Advanced economies made available more than 5 trillion USD through government-supported credit guarantee and direct loan programs to provide lifelines to firms in the face of the COVID-19 pandemic. Notwithstanding the unprecedented scale of credit made available, an in-depth analysis of the fiscal consequences is missing, and the costs of these programs are not recognized in a transparent way. In this paper, we fill in an important aspect of the fiscal picture by estimating the subsidies that were provided by the largest credit guarantee programs introduced in 2020 in seven advanced economies. We estimate the subsidies on a fair value basis that provides a consistent and comprehensive upfront measure of cost. We explain the logic behind applying a fair value framework in a government context and compare it to alternative approaches. For the programs that we examine, total credit extended totaled 1.7 trillion USD. The subsidy element (cash-equivalent subsidy) is estimated to be 67 percent of loan principal on average (37 percent, excluding the US PPP), with a wide range across programs, from 12 to 100 percent. The variation is explained by differences across programs including eligibility criteria, loan terms, compensation to lenders, and other program design choices.

Germany --- Macroeconomics --- Economics: General --- Industries: Financial Services --- Money and Monetary Policy --- Diseases: Contagious --- Banks and Banking --- Public Economics: General --- Fiscal Policies and Behavior of Economic Agents: General --- Publicly Provided Goods: General --- National Government Expenditures and Related Policies: General --- National Budget, Deficit, and Debt: General --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Governmental Loans, Loan Guarantees, Credits, and Grants --- Health Behavior --- Interest Rates: Determination, Term Structure, and Effects --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- Monetary economics --- Infectious & contagious diseases --- Credit --- Money --- Loans --- Financial institutions --- Loan guarantees --- COVID-19 --- Health --- Discount rates --- Financial services --- Currency crises --- Informal sector --- Economics --- Communicable diseases --- Discount --- Covid-19

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How do policy communications on future f iscal targets af fect market expectations and beliefs about the future conduct of f iscal policy? In this paper, we develop indicators of f iscal credibility that quantify the degree to which policy announcements anchor expectations, based on the deviation of private expectations f rom official targets, for 41 countries. We find that policy announcements partly re-anchor expectations and that f iscal rules and strong fiscal institutions, as well as a good policy track record, contribute to magnifying this effect, thereby improving fiscal credibility. Conversely, empirical analysis suggests that markets reward credibility with more favorable sovereign financing conditions.

Spain --- Macroeconomics --- Economics: General --- Public Finance --- Budgeting --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Fiscal Policy --- Studies of Particular Policy Episodes --- Structure, Scope, and Performance of Government --- Fiscal Policies and Behavior of Economic Agents: General --- National Budget --- Budget Systems --- Economic & financial crises & disasters --- Economics of specific sectors --- Budgeting & financial management --- Fiscal policy --- Fiscal rules --- Budget planning and preparation --- Public financial management (PFM) --- Fiscal stance --- Macro-fiscal analysis --- Currency crises --- Informal sector --- Economics --- Budget

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The Bank of Japan has introduced various unconventional monetary policy tools since the launch of Abenomics in 2013, to achieve the price stability target of 2 percent inflation. In this paper, a forward-looking open-economy general equilibrium model with endogenously determined policy credibility and an effective lower bound is developed for forecasting and policy analysis (FPAS) for Japan. In the model’s baseline scenario, the likelihood of the Bank of Japan reaching its 2 percent inflation target over the medium term is below 40 percent, assuming the absence of other policy reactions aside from monetary policy. The likelihood of achieving the inflation target is even lower under alternative risk scenarios. A positive shock to central bank credibility increases this likelihood, and would require less accommodative macroeconomic policies.

Banks and Banking --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Monetary Policy --- Central Banks and Their Policies --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Fiscal and Monetary Policy in Development --- Price Level --- Deflation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics: Production --- Macroeconomics --- Banking --- Monetary economics --- Inflation targeting --- Central bank policy rate --- Output gap --- Prices --- Monetary policy --- Financial services --- Production --- Interest rate floor --- Banks and banking --- Interest rates --- Economic theory --- Japan