Arteta, Kose, Stocker & Taskin: Negative Interest Rate Policies – Sources and Implications (World Bank)

Abstract

Against the background of continued growth disappointments, depressed inflation expectations, and declining real equilibrium interest rates, a number of central banks have implemented negative interest rate policies (NIRP) to provide additional monetary policy stimulus over the past few years. This paper studies the sources and implications of NIRP. It reports four main results. First, monetary transmission channels under NIRP are conceptually analogous to those under conventional monetary policy but NIRP present complications that could limit policy effectiveness. Second, since the introduction of NIRP, many of the key financial variables have evolved broadly as implied by the standard transmission channels. Third, NIRP could pose risks to financial stability, particularly if policy rates are substantially below zero or if NIRP are employed for a protracted period of time. Potential adverse consequences include the erosion of profitability of banks and other financial intermediaries, and excessive risk taking. However, there has so far been no significant evidence that financial stability has been compromised because of NIRP. Fourth, spillover implications of NIRP for emerging market and developing economies are mostly similar to those of other unconventional monetary policy measures. In sum, NIRP have a place in a policy maker’s toolkit but, given their domestic and global implications, these policies need to be handled with care to secure their benefits while mitigating risks.

 

Available for download here.

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Krane: Climate Risk and the Fossil Fuel Industry – Two Feet High and Rising

From the Introduction:

Burning coal, oil and natural gas is responsible for two-thirds of the world’s emissions of greenhouse gases. These same fuels also represent the economic mainstay of resource-rich countries and the world’s largest firms. Any steps humanity takes to reduce climate-warming emissions will damage commercial opportunities. Relief for the climate means danger for the fossil fuel business. Given the stakes, it bears asking: What, exactly, are the risks? How are they manifested and distributed? Luminaries such as the US president and the governor of the Bank of England have called for leaving large portions of oil, gas, and coal reserves in the ground. International Energy Agency director Fatih Birol has said that two-thirds of known fossil fuel reserves can never be burned if humanity is to prevent average global temperatures from rising by more than 2°C.  Pope Francis, the leader of the world’s 1.2 billion Catholics, has called for “swift and unified global action” on climate change. For fossil fuel businesses, such statements represent existential threats. By Citicorp’s estimate, large-scale resource abandonment translates into an eye-watering $100 trillion in foregone fossil fuel revenues by 2050.

 

Available for download here.

Angelis, Tordrup & Kanavos: Is the Funding of Public National Health Systems Sustainable over the Long Term? Evidence from Eight OECD Countries

Abstract

This study examines what impact macroeconomic and health-related factors have on the financial sustainability of health care systems; provides insights on additional financial resources required in order for demand for health care to be met; and reflects on needed reforms by health care systems in the near future. Publicly available data are used to identify the key variables influencing health spending. Statistical analysis is used to provide estimates of future required levels of health spending. Average macroeconomic performance, high debt levels, the need to contain fiscal deficits combined with adverse demographic developments, high outlays on health technologies and competing public sector needs, suggest that a funding gap between required and committed levels of health spending will exist in the next few years. This funding shortfall can be significant and in cumulative terms may range between 39 per cent and 61 per cent of 2012 health expenditure levels over the 2013–2017 period. Health care decision makers will need to place emphasis on outcomes-based reimbursement, set priorities based on efficiency rules, and implement organisational innovations in order to ensure affordability and sustainability. In the opposite case, contraction of services offered and exclusions from coverage are not unlikely.

 

Article available here ($).