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on Central Banking |
| By: | Luis Alberto Alonso González (Universidad Complutense, Madrid); Pilar García Martínez (Universidad de Salamanca) |
| Abstract: | In this article we will show that independence is not enough to impose a given inflation target when the Central Bank is following a Taylor rule, moreover in such a case, the fiscal authority will be able to set a different objective from the one sought by the monetary authority. On the other hand, if the fiscal authority is acting in accordance with a rule in which there is a estimated equilibrium expenditure G* similar to the estimated real interest rate r* in the Taylor rule, neither the government will be able to establish its inflation target value. In this sense, the type of rule that the economic authorities implement is essential for stabilization purposes. The different periods of implementation in fiscal and monetary policy are taken into account although they did not change the main conclusions. |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doctra:04-01&r=cba |
| By: | Alfonso Palacio-Vera (Universidad Complutense de Madrid.) |
| Abstract: | Conventional explanations of how a growing potential output generates an equi-proportional increase in aggregate demand in the long run usually rely on the real balance effect. Yet this mechanism has a negligible size and an uncertain sign. We present a theoretical framework for the analysis of the power of conventional monetary policy to take the economy down its potential output path. We develop a simple model that predicts the behavior of the ‘neutral’ interest rate and the ‘pseudo-warranted’ interest rate in the wake of different types of shocks. We identify several different scenarios according to whether the behavior of the ‘neutral’ real interest rate enhances or weakens the power of conventional monetary policy. Likewise, we identify several regimes depending on whether a rise in the target rate of inflation in steady growth yields faster or slower output growth when the ‘natural’ rate is not (fully) exogenous. In addition, we provide a formal definition of the concept of the ‘growth trap’ which complements the notion of the ‘liquidity trap’. Finally, we propose a taxonomy of monetary policy regimes. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doctra:05-02&r=cba |
| By: | Andrew Hughes Hallett (Department of Economics, Vanderbilt University); Diana N. Weymark (Department of Economics, Vanderbilt University) |
| Abstract: | This article investigates the impact on economic performance of the timing of moves in a policy game between the government and the central bank for a government with both distributional and stabilization objectives. It is shown that both inflation and income inequality are reduced without sacrificing output growth if the government assumes a leadership role compared to a regime in which monetary and fiscal policy is determined simultaneously. Further, it is shown that government leadership benefits both the fiscal and monetary authorities. The implications of these results for a country deciding whether to join a monetary union are also considered. |
| Keywords: | Central bank independence, monetary policy delegation, policy coordination, policy game, policy leadership |
| JEL: | E52 E61 F42 |
| Date: | 2002–05 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0208&r=cba |
| By: | Oliver Hülsewig; Eric Mayer; Timo Wollmershäuser |
| Abstract: | This paper addresses the credit channel in Germany by using aggregate data. We present a stylized model of the banking firm in which banks decide on their loan supply in light of uncertainty about the future course of monetary policy. Applying a vector error correction model (VECM), we estimate the response of bank loans after a monetary policy shock taking into account the reaction of the output level and the loan rate. We estimate our model to characterize the response of bank loans by matching the theoretical impulse responses with the empirical impulse responses to a monetary policy shock. Evidence in support of the credit channel can be reported. |
| Keywords: | monetary policy transmission, credit channel, loan supply, loan demand, minimum distance estimation |
| JEL: | E44 E51 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1380&r=cba |
| By: | Christian Bauer; Bernhard Herz |
| Abstract: | Stabilizing the exchange rate is a major monetary policy goal in a number of Mediterranean countries.We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize de facto exchange rate regimes and to derive a market based measure of the credibility of these exchange rate regimes. In our empirical analysis we compare the exchange rate policies of seven non European Mediterranean countries, Algeria, Egypt, Israel, Libya, Morocco, Turkey and Tunisia, with the benchmark of four European non EU countries namely Albania, Bulgaria, Croatia, and Romania. Our results indicate that the fundamental volatility of the market based ex- change rates is quite moderate and that markets assign a moderate degree of credibility to the exchange rate management of most of the countries. |
| Keywords: | monetary policy, exchange rate policy, credibility, Mediterranean, Eastern Europe, technical trading |
| JEL: | D84 E42 F31 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:uba:hadfwe:mediterranean-bauer-herz_2004-12&r=cba |