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on Central Banking |
| By: | Paula Albuquerque |
| Abstract: | This paper studies the consequences of having either an interventionist or a non-interventionist central bank in the foreign exchange market, in a market microstructure framework. Although a simple one-period model is used, it allows the characterization of the effect of the central bank intervention on the behaviour of dealers. The model also identifies the conditions for the dealer that acts as the counterpart of the central bank to be better or worse than the other dealers. The price is expected to be more informative with an interventionist central bank. |
| Keywords: | foreign exchange market; interdealer market; central bank intervention; information; market microstructure. |
| JEL: | D4 D8 F3 G1 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp92005&r=cba |
| By: | Marcela Meirelles-Aurelio |
| Abstract: | In inflation targeting (IT) regimes, the Monetary Authority announces an explicit objective, the target for inflation. However, other objectives that possibly conflict with the inflation goal are present, such as keeping output close to its potential level and the stability of financial markets. This multiplicity of objectives has spurred a debate on whether inflation targeting really provides a transparent framework for monetary policy. This question is addressed in this paper, focusing on the experience of six countries that adopted IT. The empirical investigation is based on a variety of data sets (including real time data and Central Bank's forecasts), as well as on alternative forward-looking reaction functions. The main finding is that, if transparency is interpreted as the short run predictability of policy actions, consistent with the announced inflation goal, then most of the IT regimes here examined are remarkably transparent. However, this is not necessarily true if a more broad interpretation of transparency is required. The data also reveals a certain degree of heterogeneity across countries and time, and therefore recommends caution with respect to general statements regarding the properties of IT regimes. |
| Keywords: | Monetary policy ; Inflation (Finance) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-02&r=cba |
| By: | Aurelijus Dabušinskas (Bank of Estonia) |
| Abstract: | This paper examines the relationship between money and prices in Estonia in the period 1997Q1-2003Q3. The concept of a price (or real money) gap suggested by the P-star theory is applied to investigate whether information about the current money stock can be used to explain and/or predict GDP deflator inflation over the sample period. The results show that the money gap measure dominates the output gap as an explanatory variable for inflation in the short run. However, the money gap does not seem to be a proper indicator for predicting inflation over longer horizons, say, 12 months ahead. There are some signs that the output gap is becoming a better indicator of future inflation over time, but more data are needed to confirm this hypothesis. |
| Keywords: | P-star, inflation, money demand |
| JEL: | E31 E41 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2005-07&r=cba |