Russian Journal of Money and Finance: The lean-against-the wind policy and other measures of financial stability

The third issue of the Russian Journal of Money and Finance for the year 2019 is now available.

To ensure financial stability, central banks use various monetary and macroprudential policy tools. In their article, Mikhail Andreev (Bank of Russia), M. Udara Peiris and Aleksandr Shirobokov (National Research University Higher School of Economics), and Dimitrios P. Tsomocos (University of Oxford) examine the impact of four alternative countercyclical policies on financial stability that respond to growth in unsecured debt. The authors find that the lean-against-the-wind policy, i.e. a monetary policy under which the key rate depends not only on its previous values and the inflation rate but also on the growth of unsecured debt in the economy so that monetary policy acts as a tool to ensure financial stability, is the most effective, simultaneously influencing the real economy and stabilizing the banking system in response to both oil price and total factor productivity shocks together with the loan-to-value ratio.

In resource-based economies, high commodity price periods lead to a boom in lending and external debt growth followed by complications in foreign currency lending when commodity markets change. Marina Tiunova (Bank of Russia) studies the influence of commodity price dynamics on overall lending in six resource-based economies as well as the degree to which the implementation of macroprudential policies can reduce the dependence of a country on global commodity cycles. Analyzing data from the last two decades, the author shows that trends in lending are less dependent on changes in the global terms of trade in developing countries that make extensive use of macroprudential policy (for example, in Columbia, which applies seven different macroprudential tools).

In their joint research on the link between foreign exchange trends and inflation with respect to the degree of inflation expectation anchoring, Tatiana Evdokimova, Grigory Zhirnov, and Inge Klaver (Nordea Bank) conclude that the consequences of the capital outflow shock in 2018 have been broadly the same in countries with more and less anchored inflation expectations. This can be explained, among other reasons, by the faster switch to a tighter monetary policy regime by the central banks that experienced capital outflow in 2013. Inflation accelerated less in response to foreign exchange weakness in countries with more anchored inflation expectations during the longer period of 2011–2019.

This issue also contains a review of the Bank of Russia’s international research conference, ‘Macroprudential Policy Effectiveness: Theory and Practice’, held in St. Petersburg in July. The review summarizes the main conclusions and results of the papers presented by those who took part in the conference.

In his paper, Alexei Deviatov (Russian Presidential Academy of National Economy and Public Administration) uses а demand function for money to estimate such a function for gold using data for 1561–1913. The results suggest that the real value of gold varies a great deal relative to the expected return and depends on it negatively, rather than positively.