Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
This paper analyzes inflation dynamics in 21 advanced and emerging market economies since 2020. We decompose inflation into core inflation as measured by the weighted median inflation rate, and headline shocks––deviations of headline inflation from core. Headline shocks occurred largely on account of energy price changes, although food price changes and indicators of supply chain problems also played a role. We explain the evolution of core inflation with two factors: the strength of macroeconomic conditions—measured by the unemployment gap, the output gap, and the ratio of job vacancies to unemployment—and the pass-through into core inflation from past headline shocks. We conclude that the international rise and fall of inflation since 2020 largely reflected the direct and pass-through effects of headline shocks. Macroeconomic conditions generally played a secondary role. In the United States, estimated price pressures from strong macroeconomic conditions had been greater than in other economies but have eased.
The Transmission of Monetary Policy Within Banks: Evidence from India
India’s central bank frequently injects liquidity into banks or drains liquidity by altering the cash balances that banks must maintain with it. We analyze the lending responses within banks to these quantitative tools of monetary policy. We use internal data from over 125,000 branches of banks, and estimate empirical specifications that control for time-varying unobserved heterogeneity in banks and geographies. We show that the within-bank variation in lending is economically significant, and is explained by a rich suite of branch asset, liability, and organizational variables. Branches that are larger, make loans with smaller ticket size, are deposit rich, make shorter term loans, have fewer non-performing assets, and greater managerial capacity respond more to monetary policy. Responses are more sluggish in state-owned banks. Thus, besides the external financing frictions faced by banks, internal frictions within banks significantly explain the lending responses to funding shocks.