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I contribute to the ongoing policy discourse on the challenges of monetary policy transmission in environments with consolidated financial sectors and high credit rates. I empirically investigate the lending rate pass-through in Azerbaijan – a small resource-rich economy in transition – by taking advantage of a unique set of high-frequency bank-level data. My bottom-line policy message is the following. First, lending rates are considerably irresponsive to monetary policy shocks, and the interest rate channel ought to be somehow improved. Second, macroeconomic fundamentals and the concentrated bank sector are surprisingly not among the reasons behind the policy-market disconnect. Third, domestic commercial banks are able to exert substantial monopolistic pricing capacities and keep credit rates high, particularly when the central bank loosens its policy stance. Fourth, the underlying cause of both monetary policy inefficacy and high interest rate stickiness appears to be structural excess liquidity. In fact, empirical results show that pass-through is substantially higher for less liquid banks. Extraction of excess liquidity from the system should mitigate the banks’ monopolistic pricing powers, improve the efficiency of the interest rate channel, and ultimately bring the credit rates down.

The Cuban dollarization is an original, complex phenomenon. In spite of serious difficulties, till now the process has remained under control. The government has reached in some degree its goal of rising foreign currency inflows, thus also of insuring economic recovery. Obviously, the dollarization’s effects have not been all positive, and the state recurrently recalls its wish to suppress it as soon as possible. This article explains to what extent the present dollarization is to be distinguished from the pre-revolutionary one; analyses its causes, mechanisms, and effects; and evaluates the debate about dollarization and scenarios of de-dollarization for Cuba.

A key problem for Japanese government policy relates to developing alternate forms of financing and investment. This study recommends that further development of Japan’s corporate bond market will provide an alternate investment vehicle, though improved access by foreign market participants including borrowers, investors and investment banks is a necessary precondition to the development of this market. Concerted efforts must be made to ease Japanese investors’ excessive aversion to risk, which limits the development of the extensive high-yield markets that exist in the U.S. and are now developing in Europe.

The interbank market in China experienced remarkable squeezes in liquidity in 2013. In particular, the overnight Shanghai Interbank Offered Rate reached a historical high in June. Banks were unprepared, facing the occurrence of various liquidity demands simultaneously. Effects of the liquidity squeeze spread across markets, and concerns were expressed about the health of the banking sector in the world’s second largest economy. Yet the central bank of China maintained an unswerving view that the tightness of liquidity was only structural, and could be overcome by the commercial banks themselves. While it may be too early to judge whether the central bank was correct, or whether there is systematic liquidity risk in the banking sector, markets received a clear signal from the People’s Bank of China. The central bank stopped acting as a ‘perpetual put option’ for commercial banks and refused to take responsibility to satisfy liquidity needs in the interbank market. Its intention is clear; that is, to adjust monetary policy and support economic reform in China. The new Chinese government seems determined to steer a new course away from the previous growth episode. Its resolution has been published and actions have been taken. Among them, the central bank’s changes to monetary policy have received responses from the markets, and the People’s Bank of China is now in the vanguard of a battle to squeeze liquidity. It is difficult to predict what further actions the government will take. However, it should be aware that the driving force of economic reform in China comes from structural change and productivity improvement. Without follow-up policies, complication in the financial system could undermine the central bank’s effort and international capital flows may quickly substitute the opening position of the central bank in the interbank market. More wisdom is required if China is to win the battle for deleveraging and structural reform.

This chapter proposes a comparative analysis of the monetary policies undertaken by the Federal Reserve Board and the European Central Bank after the 2008 subprime crisis. We point out the twin nature of the financial crises in Europe in comparison with the US crises: in addition to the role of bank funding, the euro area countries have also experienced a structural problem of balance of payment disequilibria. This explains why in the early stages of the subprime crisis, the Fed has succeeded in tackling the illiquidity problems facing the banking sector, while the ECB did not. The Fed could then focus on tackling the recession in the real sector by adopting quantitative easing policies to exert downward pressure on the long-term interest-rate. In the euro area quantitative easing policies came later, in 2013. Even the forward guidance policies have been different between the two central banks. Unlike the ECB, the Fed has gone through diverse forward guidance policies: qualitative, calendar-based, and state-contingent. The chapter proposes a new survey of the monetary policies after the subprime crisis by comparing two strategies in different contexts: the United States and the euro area.

In the past decade, academic research has been awash with proposals on how Japan should reform, redesign and administer its bank-based financial system (Schinasi & Smith, 1998; Kuratani & Endo, 2000; Hattori, Koyama, & Yonetani, 2001; Rhee, 2001; Baba & Hisada, 2002; Batten & Szilagyi, 2003). Until the late 1980s, this unique regime, involving banks having cross-ownership with industry, was a driving force behind Japan's post-war economic miracle. However, the burst of the asset bubble, and the subsequent prolonged ailing of both the banking sector and the economy as a whole suggests that during the bubble period, the monitoring effectiveness of banks was compromised by a lack of independence from industry and the absence of external discipline. This banking crisis ultimately impaired the corporate sector's fund-raising ability, while trapping excess liquidity in the financial system through a lack of attractive investment choice afforded to risk-averse Japanese investors.