nep-cba New Economics Papers
on Central Banking
Issue of 2006‒03‒05
28 papers chosen by
Roberto Santillan
EGADE - ITESM
  1. Inflation-Target Expectations and Optimal Monetary Policy By Sujit Kapadia
  2. Inflation Inertia and Monetary Policy Shocks By Julia Lendvai
  3. "The Case for Rate Hikes: Did the Fed Prematurely Raise Rates?" By L. Randall Wray
  4. Financial Dollarization in Latin America By Robert Rennhack; Masahiro Nozaki
  5. Inflation prediction from the term structure: the Fisher equation in a multivariate SDF framework By Chiona Balfoussia; Mike Wickens
  6. Credit Frictions, Housing Prices and Optimal Monetary Policy Rules By Andrea Pescatori; Caterino Mendicino
  7. Inflation, Central Bank Independence and the Legal System By Bernd Hayo; Stefan Voigt
  8. Inflation Persistence, Fiscal Constraints and Non-cooperative Authorities Stabilization Policy in a Monetary Union By Titiana Kirsanova; David Vines; Mathan Satchi; Simon Wren-Lewis
  9. Effects of a Labor Market Reform on the Effectiveness of the Monetary Policy By Ana Paula Ribeiro; Alvaro Aguiar
  10. Declining Output Volatility in Germany: Impulses, Propagation, and the Role of the Monetary Policy By Ulrich Fritsche; Vladimir Kuzin
  11. Monetary Policy Rules and Inflation Targets in Emerging Economies Evidence for Mexico and Israel By Rebeca I Muñoz Torres
  12. Money Demand and Inflation in Madagascar By Koffie Ben Nassar
  13. Suppressed Inflation and Money Demand in Zimbabwe By Sònia Muñoz
  14. On the Optimality of Delay in 'Monetary Policy as a Process of Search' By Doyle, Matthew
  15. Testing for Asymmetries in the Preferences of the Euro-Area Monetary Policymaker By Manuel M F Martins; Alvaro Aguiar
  16. Central Banking at the Periphery of the British Empire: Colonial Burma, 1886-1937 By Sean Turnell
  17. Does Inflation in China Affect the United States and Japan? By Luke Willard; Tarhan Feyzioglu
  18. Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes? By Doyle, Matthew; Falk, Barry L.
  19. "The Fed and the New Monetary Consensus: The Case for Rate Hikes, Part Two" By L. Randall Wray
  20. Central Bank Reform and Inflation Dynamics in the Transition Economies theory and some evidence By Athanasios Papadopoulos; Giuseppe Diana; Moise Sidiropoulos
  21. Monetary Policy by Committee: Why and How? By Alan Blinder
  22. Central Banking by Committee By Anne Sibert
  23. Inflation Targets as Focal Points By Maria Demertzis; Nicola Viegi
  24. Inflation and Financial Depth By Bruce D. Smith; Mohsin S. Khan; A. Senhadji Semlali
  25. Fiscal Policy and Financial Markets By Thomas Stratmann; Bernardin Akitoby
  26. Inflation Persistence Revisited By Marika Karanassou; Dennis J Snower
  27. Aggregate Implications of Wealth Redistribution: The Case of Inflation* By Matthias Doepke; Martin Schneider
  28. Inflation Differentials and Different Labor Market Institutions in the EMU By Ester Faia; Alessia Campolmi
  1. By: Sujit Kapadia (Balliol College University of Oxford)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:81&r=cba
  2. By: Julia Lendvai (University of Namur)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:51&r=cba
  3. By: L. Randall Wray
    Abstract: From this paper's Preface, by Dr. Dimitri B. Papadimitriou, President: For a time, the Federal Open Market Committee (FOMC) seemed to have learned from the mistakes of the past. Instead of taking good economic performance as a sign of incipient inflation, Chairman Alan Greenspan kept interest rates relatively low in the late 1990s, even as unemployment plummeted.Many commentators worried that the FOMC's unusually easy stance would usher in a period of runaway inflation, but inflation stayed in the 2 to 3 percent range. Now, with scant evidence of an inflationary threat, Greenspan and his committee seem intent on raising interest rates. Greenspan argues that the current anemic expansion is "self-sustaining" and no longer needs the support of low interest rates. In this new brief, Levy Institute Senior Scholar L. Randall Wray evaluates the Fed's concern about a coming inflation and its decision to begin raising interest rates. He begins with an examination of key market developments that might signal inflation.Most economists worry about inflation when labor markets begin to tighten and employees gain the bargaining power necessary to demand pay raises.Wray marshals an array of evidence demonstrating that workers can only wish for such conditions. The economy has created no net new jobs since the beginning of the current presidential term. To match the 64.4 percent proportion of adults who held jobs during the Clinton era, the economy would have to generate four million new positions. It is clear that the job market will not be a source of inflation any more than it was during the Clinton boom.
    Date: 2004–08
    URL: http://d.repec.org/n?u=RePEc:lev:levppb:ppb79&r=cba
  4. By: Robert Rennhack; Masahiro Nozaki
    Keywords: Dollarization , Latin America , Monetary policy , Credit , Flexible exchange rates , Exchange rate depreciation ,
    Date: 2006–01–19
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:06/7&r=cba
  5. By: Chiona Balfoussia (University of York); Mike Wickens (University of York and CEPR)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:16&r=cba
  6. By: Andrea Pescatori (Universitat Pompeu Fabra); Caterino Mendicino (Stockholm School of Economics)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:67&r=cba
  7. By: Bernd Hayo (Philipps University Marburg); Stefan Voigt (University of Kasel and ICER)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:57&r=cba
  8. By: Titiana Kirsanova (University of Exeter); David Vines (Balliol College University of Oxford); Mathan Satchi (University of Kent); Simon Wren-Lewis (University of Exeter)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:17&r=cba
  9. By: Ana Paula Ribeiro (Universidade do Porto); Alvaro Aguiar (Universidade do Porto)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:25&r=cba
  10. By: Ulrich Fritsche (German Institute of Economic Research); Vladimir Kuzin (Goethe-University Frankfurt)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:70&r=cba
  11. By: Rebeca I Muñoz Torres (University of Leicester)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:3&r=cba
  12. By: Koffie Ben Nassar
    Keywords: Demand for money , Madagascar , Inflation , Prices , Money markets , Exchange rates , Interest rates , Economic models ,
    Date: 2005–12–30
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:05/236&r=cba
  13. By: Sònia Muñoz
    Keywords: Inflation , Zimbabwe , Demand for money , Price controls , Economic models ,
    Date: 2006–01–30
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:06/15&r=cba
  14. By: Doyle, Matthew
    Abstract: Caplin and Leahy (1996) show that, when central bankers learn about the economy by observing its response to policy shock, cautious monetary policy may be ineffectual as private agents correctly anticipate that today's interest rate cuts are likely to be followed by future cuts. The central banker has to account for this strategic response of private agents to small interest rate cuts by acting more aggressively than would otherwise be the case. Caplin and Leahy, however, do not examine whether or not this strategic behavior on the part of private agents represents a constraint on the ability of monetary policy to implement optimal investment outcomes. The purpose of this paper is to show that the kinds of strategic interactions between investors and the central banker highlighted by Caplin and Leahy affect only the policy rule and do not influence the investment outcome in equilibrium.
    Keywords: Monetary Policy, Strategic Delay
    JEL: E5
    Date: 2006–02–22
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12503&r=cba
  15. By: Manuel M F Martins (Universidade do Porto); Alvaro Aguiar (Universidade do Porto)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:41&r=cba
  16. By: Sean Turnell (Department of Economics, Macquarie University)
    Abstract: The purpose of this paper is to bring to light the efforts to fashion a central bank in Burma during the years in which the country was a province of British India. Throughout this period, which lasted from 1886 to 1937, questions of money and finance in Burma were mostly the preserve of the Raj in Calcutta and New Delhi. And, yet, it is a little-known fact that plans to establish a central bank for Burma were promoted throughout the colonial years by a succession of imperial officials. These plans, which reached their apogee in the 'monetary reform' advocacy that followed the Great Depression, were never realised in the colonial era. They were, however, indicative of a political economy discourse in colonial Burma that was more vigorous, and theoretically sophisticated, than is commonly supposed.
    Keywords: Monetary institutions, British Empire, Burma, Indian monetary reform
    JEL: N25 E42 E58
    Date: 2005–07
    URL: http://d.repec.org/n?u=RePEc:mac:wpaper:0511&r=cba
  17. By: Luke Willard; Tarhan Feyzioglu
    Keywords: Inflation , China , United States , Japan , Deflation , Trade , Economic models ,
    Date: 2006–02–09
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:06/36&r=cba
  18. By: Doyle, Matthew; Falk, Barry L.
    Abstract: Recent theoretical work shows that volatility in inflation and/or unemployment can generate time consistency problems when the central banker's loss function is asymmetric. Empirical work to date has been inconclusive. We show that previous evidence offered in support of the proposition that the volatility of unemployment helps explain inflation outcomes suffers from a spurious regression problem. Once this problem is controlled for, the evidence suggests that the volatility of unemployment does not help explain inflation outcomes. Inflation volatility can help explain inflation outcomes, but for this relationship to be due to asymmetries in central bank preferences it would require that central bankers dislike low inflation more than they dislike high inflation.
    JEL: E5
    Date: 2006–02–20
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12501&r=cba
  19. By: L. Randall Wray
    Abstract: From this paper's Preface, by Dr. Dimitri B. Papadimitriou, President: In Public Policy Brief No. 79, L. Randall Wray wrote about the Federal Reserve’s recent interest rate hikes that "the most charitable interpretation of the Fed’s policy change is that it appears to be premature."Wray marshaled a convincing array of data on payrolls, employment-to-population ratios, and other labor market indicators to show "that the current recovery has not yet attained the degree of labor market tightness that was common in previous recoveries," and therefore that the threat of inflation was minimal. Hence, the Fed, in raising rates, was unnecessarily jeopardizing the economy’s weak recovery. In this new brief, we learn about the flaws in the Fed’s thinking that have led to its frequent policy mistakes.Wray traces several strands of current central bank thinking back to their roots in the Fed’s internal discussions in the mid-1990s. Transcripts of these discussions have recently been released, a development that has yielded some disturbing and telling insights about the way in which monetary policy is formed. The situation of 1994 closely parallels that of current times. Unemployment was clearly above its lowest sustainable level, and inflation was low. Still, the Federal Open Market Committee (FOMC) and its chairman, Alan Greenspan, believed that interest rates had to be raised to keep prices in check. As it turned out, inflation stayed low, even as unemployment sank to levels previously believed to be inflationary. The Fed’s interest rate hikes proved to be unnecessary at best and counterproductive at worst. Not only is the current economic environment reminiscent of 1994, but so are contemporary justifications for recessionary policies.Wray lists six tenets of policy making common to both periods: transparency, gradualism, activism, low inflation as the only official goal, surreptitious targeting of distributional variables, and the neutral rate as the policy instrument to achieve these goals. The Fed would not be eager to espouse some of these principles publicly, but they were all discussed in committee meetings, as the recently released transcripts make clear—and there is no reason to think the Fed has changed its philosophy. Wray shows that this philosophy is convoluted. Fed officials claim that they are attempting to reach a neutral interest rate that neither provokes inflation nor causes recession. But they also say that they will not know the level of the neutral rate until they reach it. Little can be gained by pursuing such a chimerical goal. Moreover, even when the interest rate was far below its supposedly neutral level, the economy seemed to be free of inflation. Finally, the Fed seems to have painted itself into a corner by promising in advance a gradual series of interest rate increases. It is small wonder that the press finds the Fed’s public statements to be somewhat confusing and cryptic. The Fed transcripts shed light on the events of 1994 and those of the present day. I think that it is time for a new approach to monetary policy; this brief shows why.
    Date: 2004–12
    URL: http://d.repec.org/n?u=RePEc:lev:levppb:ppb80&r=cba
  20. By: Athanasios Papadopoulos (University of Crete); Giuseppe Diana (University Robert Schuman); Moise Sidiropoulos (Aristotle University of Thessaloniki)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:58&r=cba
  21. By: Alan Blinder
    Abstract: Among the most notable, but least discussed, hallmarks of what I have called the "quiet revolution" in central banking practice (Blinder, 2004a) has been the movement toward making monetary policy decisions by committee. Until about a decade ago, most central banks had a single governor, who might or might not have been independent of the rest of the government. But since then, the United Kingdom, Japan, Sweden, Norway, Switzerland, and Brazil, to name just a few, have opted to establish monetary policy committees (MPCs). In addition, the committee-based ECB replaced 12 central banks, most of which had previously been run by individual governors. Thus the existence of a pronounced worldwide trend is clear. In this paper, I discuss two questions. The first question is why. Why have so many central banks switched from individual to group decisionmaking? The second question is how. How should central banks make decisions and how should they communicate with the public, the government, and the markets?
    Keywords: central banks; committees; voting; communication.
    JEL: E58 D71 D78
    Date: 2006–02
    URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:092&r=cba
  22. By: Anne Sibert
    Abstract: There is a small, but growing, economics literature on the importance and effects of having monetary policy made by a committee, rather than by an individual. Complimenting this is an older and larger body of literature on groups in the other social sciences, particular in social psychology. This paper provides a review of some of this work, focusing on two important features of committees: the effect of their size on performance and whether or not they are more moderate than the members who make them up. Individual members of a committee acquire idiosyncratic information which the committee uses to make a decision. A result of the famous Condorcet Jury Theorem is that larger committees have more resources, in the form of more information, and are thus better than smaller ones. This result depends on individuals being willing to work as hard at gathering information when they are members of a committee as they would be willing to work if they were acting alone. The economics literature suggests that this may not hold; that individual members may have an incentive to shirk. This phenomenon of a member withholding effort is called social loading in the social pyschology literature. Studies stretching over 125 years document its existence and suggest that it becomes more important as committee size increases and that it disappears when individual members contributions can be identified and evaluated. The Condorcet Jury Theorem also depends on the committee being able to aggregate members information and on members being willing to truthfully reveal their information. An excessively formal meeting structure may cause the former to fail to hold; committee members with different objectives may cause the latter not to be true. As a result of shirking and coordination problems, smaller committees may be better than larger ones and the optimal size for a committee is an empirical issue. Committees pool members information and views, thus it seems that monetary policy made by a committee should be more moderate than monetary policy made by a single individual. However, several hundred studies demonstrate that belonging to a committee polarizes its members and, hence, committees may be more extreme than individuals. A particularly harmful form of group polarization occurs when committee members striving for consensus causes them to stop paying suffcient attention to alternative courses of action. In this case the committee may make terrible decisions that none of its members would have made on their own. The results of the literature on committee size and committee polarization suggest that the ideal monetary policy committee may not have many more than five members. It should have a well defined objective and it should publish the votes of its members. It should be structured so that members do not act as part of a group, perhaps by having short terms in office and members from outside the central bank. External scrutiny of the decision-making process should be encouraged.
    Keywords: committees; monetary policy.
    JEL: E58 C92 D71
    Date: 2006–02
    URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:091&r=cba
  23. By: Maria Demertzis (De Nederlandsche Bank and University of Amsterdam); Nicola Viegi (University of KwaZulu-Natal)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:52&r=cba
  24. By: Bruce D. Smith; Mohsin S. Khan; A. Senhadji Semlali
    Abstract: Prepayment required for individual copies. An annual subscription is $375.00 a year. It includes 12 monthly shipments and priority mail delivery. The Stock No. for the subscription is WPEA.
    Keywords: Inflation , Markets , Economic models ,
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:01/44&r=cba
  25. By: Thomas Stratmann; Bernardin Akitoby
    Keywords: Fiscal policy , Risk premium , Bond markets , Emerging markets , Financial systems , Government expenditures , Revenues ,
    Date: 2006–01–30
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:06/16&r=cba
  26. By: Marika Karanassou (Queen Mary - University of London and IZA); Dennis J Snower (Institute of World Economics IZA and CEPR)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:50&r=cba
  27. By: Matthias Doepke (UCLA); Martin Schneider (NYU and Federal Reserve Bank of Minneapolis)
    Date: 2006–02–01
    URL: http://d.repec.org/n?u=RePEc:cla:uclawp:846&r=cba
  28. By: Ester Faia (Department of Economics); Alessia Campolmi (Department of Economics)
    Date: 2005–09–03
    URL: http://d.repec.org/n?u=RePEc:mmf:mmfc05:80&r=cba
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