nep-cba New Economics Papers
on Central Banking
Issue of 2005‒04‒24
seven papers chosen by
Roberto Santillan

  1. Asset price based estimates of sterling exchange rate risk premia By Jan J J Groen; Ravi Balakrishnan
  2. Inflation Expectations in the Czech Interbank Market By Martin Fukac
  3. Fiscal Consequences of Monetary Integration within the Common Economic Area: the Case of Belarus, Kazakhstan and Russia By Ainura Uzagalieva
  4. Credibility and Inflation Targeting in an Emerging Market: The Case of Chile By Luis F. Céspedes; Claudio Soto
  5. "The Effects of the Bank of Japan's Zero Interest Rate Commitment and Quantitative Monetary Easing on the Yield Curve: A Macro-Finance Approach" By Nobuyuki Oda; Kazuo Ueda
  6. MONETARY UNIONS: THE POLICY COORDINATION ISSUE By Giovanni Di Bartolomeo; Jacob Engwerda; Joseph Plasmans; Bas van Aarle

  1. By: Jan J J Groen; Ravi Balakrishnan
    Abstract: In this paper we report estimates of the effective sterling, sterling/Deutsche mark and sterling/US dollar risk premia over a monthly 1987-2001 sample, generated using a conditional factor model for the stochastic discount factor of a representative 'worldwide' investor. The model relates this stochastic discount factor to the real return on a 'worldwide' stock portfolio, with the model parameters varying with variations in the slope of the 'world' term structure of interest rates. Econometric tests indicate that this model is accepted by the data. The corresponding parameter estimates are used to compute the risk premium for the three aforementioned sterling exchange rates. A graphical analysis indicates that, in terms of magnitude, our measure of the exchange rate risk premium is mainly of importance for the sterling/Deutsche mark exchange rate. Risk-adjusted test regressions for uncovered interest rate parity vis-`a-vis the major European currencies provide some confirmation for this.
  2. By: Martin Fukac
    Abstract: Monthly data on the inflation expectations of financial analysts in the Czech Republic exhibit a tendency for permanent bias and ineffectiveness which violates the rational expectations hypothesis assumed in macroeconomic models. This paper asks whether the surveyed data include any monetary-policy relevant information, in other words, whether the surveyed expectations correspond to the true market expectations, and hence should be reflected in macro models of the Czech economy instead of the rational expectations hypothesis. Using a methodology based on a simple Fisher rule, it is found that the difference between the surveyed and market expectations is not statistically significant.
    Keywords: Inflation expectations, Nominal interest rate, Fisher rule.
    JEL: C52 E43 E44
    Date: 2005–03
  3. By: Ainura Uzagalieva
    Abstract: The aim of this paper is to analyze the possible impact of planned monetary integration on public sector revenues from seigniorage in three countries: Belarus, Kazakhstan and Russia. Using the concept of total gross seigniorage, we investigate the main sources and uses of the central bank revenues in these countries. Special attention is given to the role of seigniorage revenues in financing public sector expenditures. Amounts of yearly transfers from central banks to the state budget in Belarus, Kazakhstan and Russia are evaluated, and the size of potential gains and looses in seigniorage revenues under different scenarios of monetary integration are estimated.
    Keywords: Seigniorage, Monetary integration, Transition economies.
    JEL: E
    Date: 2005–04
  4. By: Luis F. Céspedes; Claudio Soto
    Abstract: When the monetary authority lacks credibility it faces a larger trade-off between output and inflation. This poses important challenges for the implementation and design of an inflation targeting regime and an inflation stabilization process. In this paper we show how these challenges have determined different implementation phases of an inflation targeting regime in Chile, and how imperfect credibility is consistent with the different features of the disinflationary process followed by Chile during the 90s.
    Date: 2005–04
  5. By: Nobuyuki Oda (Monetary Affairs Department, Bank of Japan); Kazuo Ueda (Faculty of Economics, University of Tokyo)
    Abstract: This paper provides an empirical investigation of monetary policy in Japan in the zero interest rate environment that has held sway since 1999. In particular, we focus on the effects of the zero interest rate commitment and of quantitative monetary easing on mediumto long-term interest rates in Japan. In the study we apply a version of the macro-finance approach, involving a combination of estimation of a structural macro-model and calibration of time-variant parameters to the yield curve observed in the market. This enables us to decompose interest rates into expectations and risk premium components and simultaneously to extract the market's perception of the Bank of Japan's (BOJ's) willingness to carry on its zero interest rate policy. In the analysis we make clear the counterfactual policy that would have been practiced in the absence of the actual policies followed by the BOJ since 1999. From this analysis, we tentatively conclude that the BOJ's monetary policy since 1999 has functioned mainly through the zero interest rate commitment, which has led to declines in medium- to long-term interest rates. We also find some evidence that, up until the end of 2003, raising the reserve target may have been perceived as a signal indicating the BOJ's accommodative policy stance although the size of the effect is not large. The portfolio rebalancing effect -- either by the BOJ's supplying ample liquidity or by its purchases of long-term government bonds -- has not been found to be significant.
    Date: 2005–04
  6. By: Giovanni Di Bartolomeo (Public Economics Department, University of Rome La Sapienza); Jacob Engwerda (Department of Econometrics, Tilburg University); Joseph Plasmans (Faculty of Applied Economics UFSIA-RUCA, University of Antwerp); Bas van Aarle (Faculty of Economics LICOS, Catholic University of Leuven)
    Abstract: In this paper we build a three-country dynamic model of a monetary union (MU), where we focus on how coalitions among policy-makers are formed and what are their effects on the stabilization of output and price. Some preliminary results based on numerical simulations are provided.
    Keywords: Macroeconomic stabilization, coalitions, LQ differential games.
    JEL: E
    Date: 2005–04–16
    Abstract: This paper examines the information provided to the private sector by central anks. By using the principal component analysis, we investigated the variance of the procedural rules followed by nine major central banks about information reatments. We investigate problems related to the information coming from the entral banks by focusing on the quantity and quality perspectives and highlight the methodological complexity of the investigation. We find that a synthetic uantitative index of transparency is not enough to represent the phenomenon ince it can result misleading in understanding the behavior of institutionally different central banks associated with the same index values.
    Keywords: Central bank transparency, principal components, monetary policy.
    JEL: E52 E58
    Date: 2005–04–16

This nep-cba issue is ©2005 by Roberto Santillan. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.