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on Central Banking |
| By: | Arnab Bhattacharjee; Sean Holly |
| Abstract: | The transparency and openness of the monetary policymaking process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates. We also find a role for asset prices through the equity market, foreign exchange market and housing prices. There are also identifiable forms of heterogeneity among members of the committee that improves the predictability of interest rate changes. This can be thought of as supporting the argument that full transparency of monetary policy decision making can be welfare enhancing. |
| Keywords: | Intertemporal macro; Monetary policy; interest rates; monetary policy committee; committee decision making. |
| JEL: | E42 E43 E50 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0503&r=cba |
| By: | Hortlund, Per (The Ratio Institute) |
| Abstract: | The effects of note monopolisation on the amplitude of money and credit cycles are studied. Note monopolisation trades clearing for leakage. If the central bank's reserve ratio is larger than that of the commercial banks, and if the currency-deposit ratio is sufficiently large, the leakage effect could domi-nate the loss-of-clearing effect (base expansion), such that the credit capacity of the banking system decreases. This was the case when the Bank of Sweden gained a note monopoly in 1904. Money and credit cycles should therefore have become smaller. Swedish bank data for 1871–1938 reveal that money cycles became smaller, but credit cycles larger. The latter is attributed to an increasing time-demand deposit ratio, which increases the credit capacity of the banking system. |
| Keywords: | Clearing mechanism; Credit expansion; Currency-deposit ratio; Fiduciary money; Free banking; Leakage; Money multiplier |
| JEL: | E32 E42 E51 |
| Date: | 2005–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0067&r=cba |
| By: | Roel Beetsma; Koen Vermeylen |
| Abstract: | We explore the implications of monetary unification for real interest rates and (relative) public debt levels. The adoption of a common monetary policy renders the risk-return characteristics of the participating countries more similar, so that the substitutability of their public debt increases after unification. This implies that the average expected real return on the debt increases. Also, the share of the unionwide debt issued by relatively myopic governments or of countries that initially have a relatively dependent central bank increases after unification. This may put the political sustainability of the union under pressure. A transfer scheme that penalizes debt increases beyond the union average is able to undo the interest rate effect of unification, but magnifies the spread in relative debt levels. |
| Keywords: | monetary union, (relative) public debt, interest rates, externalities, substitutability, central bank independence |
| JEL: | E42 E62 E63 F33 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1400&r=cba |
| By: | Pan A. Yotopoulos (University of Florence and (emeritus) Stanford University); Yasuyuki Sawada (Faculty of Economics, University of Tokyo) |
| Abstract: | We formulate and implement a new empirical procedure to examine the validity of PPP in the long-run for 153 countries by using the familiar cross-country data set of Heston, Summers, and Aten (2002). Unlike the existing studies that rely on mean reversion of real exchange rates, we explicitly examine country-specificity in the deviations of the nominal exchange rate from PPP. We find, first, that out of a total of 153 countries, 132 countries have achieved PPP within twenty years, 1980-2000 and 105 countries have attained PPP over ten years, 1990-2000. Second, according to the results, our method can be accepted as a workable shortcut of the direct, fullinformation approach of Yotopoulos (1996) that tests for long-run PPP utilizing micro-ICP data. This becomes an important characteristic of this paper since comprehensive micro-ICP data are no longer easily available. As a by-product, of the empirical validation of our shortcut approach, our empirical results are in favor of the Ricardo-Balassa-Samuelson effect. |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2005cf318&r=cba |
| By: | Henry Kim |
| Abstract: | We examine the de facto exchange rate arrangements in East Asia by applying the methods suggested by Calvo and Reinhart (2002) and Kim (2004). Estimation results suggest that three East Asian countries in our sample adopted a hard peg or a peg with capital account restrictions in the post-crisis period. Five East Asian countries in our sample moved toward a more flexible exchange rate arrangement in the post-crisis period. At least three of these five countries (Korea, Indonesia and Thailand) achieved the level of exchange rate flexibility that is close to the level accomplished in the free floater such as Australia. These results suggest that “Fear of Floating” of East Asian countries is not prevalent in the post-crisis period and that the bi-polar view has some support in East Asian samples. |
| Keywords: | Bi-polar View, De Facto Exchange Rate Arrangements, De Jure Exchange Rate Arrangements, East Asia, Fear of Floating |
| JEL: | F02 F36 F41 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0507&r=cba |
| By: | Vivek H. Dehejia and Nadja Kamhi (Department of Economics,Carleton University) |
| Date: | 2004–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:05-01&r=cba |