nep-cba New Economics Papers
on Central Banking
Issue of 2006‒04‒08
fifty-five papers chosen by
Roberto Santillan

  1. The Greenspan Era: Discretion, Rather Than Rules By Benjamin M. Friedman
  2. Does Money Matter in the ECB Strategy? New Evidence Based on ECB Communication By Helge Berger; Jakob de Haan; Jan-Egbert Sturm
  3. Optimal Central Bank Design: Benchmarks for the ECB By Helge Berger
  4. Does Central Bank Transparency Reduce Interest Rates? By Eijffinger, Sylvester C W; Geraats, Petra M; van der Cruijsen, Carin A B
  5. Monetary Policy Transparency in the UK:The Impact of Independence and Inflation Targeting By Iris Biefang-Frisancho Mariscal; Peter Howells
  6. UK Inflation Persistence: Policy or Nature? By Minford, Patrick; Nowell, Eric; Sofat, Prakriti; Srinivasan, Naveen
  7. Price Stability, Inflation Convergence and Diversity in EMU: Does One Size Fit All? By Axel A. Weber; Günter W. Beck
  8. Fear of Floating and Fear of Pegging: An Empirical Analysis of De Facto Exchange Rate Regimes in Developing Countries By von Hagen, Jürgen; Zhou, Jizhong
  10. Pervasive Stickiness (Expanded Version) By Mankiw, N Gregory; Reis, Ricardo
  11. Real and Nominal Wage Adjustment in Open Economies By Anders Forslund; Nils Gottfries; Andreas Westermark
  12. Inflation Expectations and Inflation Uncertainty in the Eurozone: Evidence from Survey Data By Ivo J. M. Arnold; Jan J.G. Lemmen
  13. Price-Level Determination Under Dispersed Information and Monetary Policy By Aoki, Kosuke
  14. Inflation Rate Dispersion and Convergence in Monetary and Economic Unions: Lessons for the ECB By Günter W. Beck; Axel A. Weber
  15. Debt, Deficits and Destabilizing Monetary Policy in Open Economies By Schabert, Andreas; van Wijnbergen, Sweder
  16. Optimal Monetary Policy in a Small Open Economy with Home Bias By Faia, Ester; Monacelli, Tommaso
  17. Inflation Bias with Dynamic Phillips Curves By Kirsanova, Tatiana; Vines, David; Wren-Lewis, Simon
  18. Optimal Fiscal Policy Rules in a Monetary Union By Kirsanova, Tatiana; Satchi, Mathan; Vines, David; Wren-Lewis, Simon
  19. Fiscal Policy and Macroeconomic Stability Within a Currency Union By Kirsanova, Tatiana; Vines, David; Wren-Lewis, Simon
  20. The Role of Fiscal Policy in a Monetary Union: Are National Automatic Stabilizers Effective? By Andrea Colciago; Anton Muscatelli; Tiziano Ropele; Patrizio Tirelli
  21. Monetary Regimes: Is There a Trade-Off Between Consumption and Employment Variability? By Matthews, Kent; Meenagh, David; Minford, Patrick; Webb, Bruce
  22. Excjange Rate Targeting in a Small Open Economy By Mette Ersbak Bang Nielsen
  23. Aggregate Implications of Wealth Redistribution: The Case of Inflation By Doepke, Matthias; Schneider, Martin
  24. Business Cycle Dynamics of a New Keynesian Overlapping Generations Model with Progressive Income Taxation By Burkhard Heer; Alfred Maussner
  25. Menu Costs and Markov Inflation: A Theoretical Revision with New Evidence By Christian Ahlin; Mototsugu Shintani
  26. The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the Ifo World Economic Survey By Steffen Henzel; Timo Wollmershäuser
  27. Do Prices grow more in Euroland? Evidence from the Airline Industry By Claudio A. Piga; Enrico Bachis
  28. Sticky Prices and Indeterminacy By Weder, Mark
  29. International Portfolio Equilibrium and the Current Account By Kollmann, Robert
  30. Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods By Benigno, Gianluca; Thoenissen, Christoph
  31. The Economic Consequences of Dollar Appreciation for U.S. Manufacturing Investment: A Time-Series Analysis By Robert A. Blecker
  32. Forecasting Substantial Data Revisions in the Presence of Model Uncertainty By Troy Matheson
  33. "Intra-day Seasonality in Activities of the Foreign Exchange Markets: Evidence from the Electronic Broking System" By Takatoshi Ito; Yuko Hashimoto
  34. On the Equality of Real Interest Rates Across Borders in Integrated Capital Markets By Minford, Patrick; Peel, David
  35. The Interaction Between Capital Controls and Exchange Rate Regimes: Evidence from Developing Countries By von Hagen, Jürgen; Zhou, Jizhong
  36. Nonlinearity in Deviations from Uncovered Interest Parity: An Explanation of the Forward Bias Puzzle By Leon, Hyginus; Sarno, Lucio; Valente, Giorgio
  37. Hedging, Speculation, and Investment in Balance-Sheet Triggered Currency Crises By Andreas Röthig; Willi Semmler; Peter Flaschel
  38. Growth and Inflation Disparities in Corridor V By Dino Martellato
  39. The Effects of Uncertainty on Currency Substitution and Inflation: Evidence from Emerging Economies By K C Neanidis; C S Savva
  40. The Empirics of International Currencies: Historical Evidence By Flandreau, Marc; Jobst, Clemens
  42. Sovereign Risk in the Classical Gold Standard Era By Gavin Cameron; Kang Yong Tan; Prasanna Gai
  43. La gouvernance financière mondiale : Où en est le Fonds Monétaire International ? By Michel Lelart
  44. Measuring Expectations By Kjellberg, David
  45. "A New Approach to Modeling Early Warning Systems for Currency Crises : can a machine-learning fuzzy expert system predict the currency crises effectively?" By Chin-Shien Lin; Haider A. Khan; Ying-Chieh Wang; Ruei-Yuan Chang
  46. Credit Risk Transfer and Contagion By Franklin Allen; Elena Carletti
  47. Credit Market Competition and Capital Regulation By Franklin Allen; Elena Carletti; Robert Marquez
  48. Competition and Entry in Banking: Implications for Stability and Capital Regulation By Boot, Arnoud W A; Marinc, Matej
  49. Competition for Order Flow and Smart Order Routing Systems By Foucault, Thierry; Menkveld, Albert J.
  50. Phillips curve forecasting in a small open economy By Anthony Garratt; Gary Koop; Shaun P. Vahey
  51. Pricing Behaviour and the Response of Hours to Productivity Shocks By Marchetti, Domenico J.; Nucci, Francesco
  52. Algunos criterios para evaluar una meta de inflación de largo plazo By Martha López
  53. Evaluación de Reglas de Tasa de Interés en un Modelo de Economía Pequeña y Abierta By Julian Pérez Amaya
  54. El Riesgo de Mercado de la Deuda Pública: ¿Una Restricción a la Política Monetaria? El Caso Colombiano By Hernando Vargas Herrera; Dpto de Estabilidad Financiera
  55. Evaluación asimétrica de una red neuronal artificial:Aplicación al caso de la inflación en Colombia By María Clara Aristizábal Restrepo

  1. By: Benjamin M. Friedman
    Abstract: What stands out in retrospect about U.S. monetary policy during the Greenspan Era is the ongoing movement away from mechanistic restrictions on the conduct of policy, together with a willingness on occasion to depart even from what more flexible guidelines dictated by contemporary conventional wisdom would imply, in the interest of carrying out the Federal Reserve System’s dual mandate to pursue both stable prices and maximum employment. Part of this change was procedural – for example, the elimination of money growth targets. The most substantive demonstration of policy flexibility came in the latter half of the 1990s, as unemployment fell below 6% (in 1994), then below 5% (in 1997), and then remained below 5% for more than four years, yet the Federal Reserve did not tighten monetary policy. This policy stance was consistent with a view of the economy, including faster productivity growth and increased exposure to international competition, that Chairman Greenspan had articulated nearly a decade before.
    JEL: E52
    Date: 2006–03
  2. By: Helge Berger; Jakob de Haan; Jan-Egbert Sturm
    Abstract: We examine the role of money in the policies of the ECB, using introductory statements of the ECB President at the monthly press conferences during 1999-2004. Over time, the relative amount of words devoted to the monetary analysis has decreased. Our analysis of indicators of the monetary policy stance suggests that developments in the monetary sector, while somewhat more important in the later half of the sample, only played a minor role most of the time. Our estimates of ECB interest rate decisions suggest that the ECB’s words (monetary-sector based policy intensions) are not an important determinant of its actions.
    Keywords: ECB, communication, monetary policy
    JEL: E43 E52 E58
    Date: 2006
  3. By: Helge Berger
    Abstract: The paper discusses key elements of optimal central bank design and applies its findings to the Eurosystem. A particular focus is on the size of monetary policy committees, the degree of centralization, and the representation of relative economic size in the voting rights of regional (or sectoral) interests. Broad benchmarks for the optimal design of monetary policy committees are derived, combining relevant theoretical arguments with available empirical evidence. A new indicator compares the mismatch of relative regional economic size and voting rights in the monetary policy committees of the US Fed, the pre-1999 German Bundesbank, and the ECB over time. Based on these benchmarks, there seems to be room to improve the organization of the ECB Governing Board and current plans for reform.
    Keywords: central bank design, federal central banks, ECB, Eurosystem, ECB reform
    JEL: D72 E58
    Date: 2006
  4. By: Eijffinger, Sylvester C W; Geraats, Petra M; van der Cruijsen, Carin A B
    Abstract: Central banks have become increasingly transparent during the last decade. One of the main benefits of transparency predicted by theoretical models is that it enhances the credibility, reputation, and flexibility of monetary policy, which suggests that increased transparency should result in lower nominal interest rates. This paper exploits a detailed transparency data set to investigate this relationship for eight major central banks. It appears that for all central banks, the level of interest rates is affected by the degree of central bank transparency. In particular, the majority of the improvements in transparency are associated with significant effects on interest rates, controlling for economic conditions. In most of these cases, interest rates are lower, often by around 50 basis points, although in some instances transparency appears to have had a detrimental effect on interest rates.
    Keywords: central bank transparency; interest rates; monetary policy
    JEL: E52 E58
    Date: 2006–03
  5. By: Iris Biefang-Frisancho Mariscal; Peter Howells (School of Economics, University of the West of England)
    Abstract: There is a widespread belief that the transparency of UK monetary policy has increased substantially as a result of the introduction of inflation targeting in 1992 and a number of procedural and institutional reforms which accompanied and followed it. In this paper, we use money market responses (and other data) to test the possibility that improved anticipation of policy moves may be the result of developments other than the institutional reforms popularly cited. We find overwhelming evidence that the switch to inflation targeting itself significantly reduced monetary policy surprises, while subsequent reforms have contributed little. Where we advance substantially on earlier work is to look at the cross-sectional dispersion of agents’ anticipation. If the benefit of transparency is the elimination of policy surprise, there is little benefit if the averagely correct anticipations of agents conceal a wide dispersion of view. The most striking feature is the general decline in cross-sectional one year-ahead forecast uncertainty of the interbank rate. So, even though we do not find that agents on average have improved monetary policy anticipation since 1997, we do find that they have become more unanimous about forecasting future money market rates. However, further testing reveals that it is a simultaneous fall in the dispersion of inflation rate forecasts that explains the increased consensus on interest rates, rather than institutional reforms in 1997 and later.
    Keywords: Monetary Policy; transparency; independence; inflation targeting
    JEL: E58
    Date: 2006–01
  6. By: Minford, Patrick; Nowell, Eric; Sofat, Prakriti; Srinivasan, Naveen
    Abstract: A large econometric literature has found that post-war US inflation exhibits very high persistence, approaching that of a random walk process. Given similar evidence for other OECD countries, many macroeconomists have concluded that high inflation persistence is a 'stylized fact'. The objective of this paper is to show that degree of inflation persistence is not an inherent structural characteristic of an economy, but in fact a function of the stability and transparency of monetary policy regime in place. We begin by estimating univariate processes for inflation across different periods, allowing for structural breaks based on a priori knowledge of the UK economy. Then we examine whether, a rather straightforward model, easily micro-founded in a standard classical set-up can generate the facts such as we find them. We calibrate our structural model for each of the regimes and solve it analytically for the implied persistence in the inflation process. We compare this theoretical prediction with the estimated persistence for each regime. Finally we bootstrap our model to generate pseudo inflation series and check whether the actual persistence coefficients lie within the 95 percent confidence limits implied by the bootstraps. As a robustness exercise we do the same for the Liverpool model.
    Keywords: bootstraps; inflation
    JEL: E0
    Date: 2006–04
  7. By: Axel A. Weber (Deutsche Bundesbank); Günter W. Beck (University of Frankfurt and CFS)
    Abstract: Using a unique data set of regional inflation rates we are examining the extent and dynamics of inflation dispersion in major EMU countries before and after the introduction of the euro. For both periods, we find strong evidence in favor of mean reversion (ß-convergence) in inflation rates. However, half-lives to convergence are considerable and seem to have increased after 1999. The results indicate that the convergence process is nonlinear in the sense that its speed becomes smaller the further convergence has proceeded. An examination of the dynamics of overall inflation dispersion (s-convergence) shows that there has been a decline in dispersion in the first half of the 1990s. For the second half of the 1990s, no further decline can be observed. At the end of the sample period, dispersion has even increased. The existence of large persistence in European inflation rates is confirmed when distribution dynamics methodology is applied. At the end of the paper we present evidence for the sustainability of the ECB’s inflation target of an EMU-wide average inflation rate of less than but close to 2%.
    Keywords: Convergence, Deflation, ECB Monetary Policy, EMU, Regional Diversity
    JEL: E31 E52 E58
    Date: 2005–11–01
  8. By: von Hagen, Jürgen; Zhou, Jizhong
    Abstract: This paper uses a panel probit model with simultaneous equations to explain the joint determination of de facto and de jure exchange rate regimes in developing countries since 1980. We also derive an ordered-choice panel probit model to explain the causes of discrepancies between the two regime choices. Both models are estimated using simulation-based maximum likelihood methods. The results of the simultaneous equations model suggest that the two regime choices are dependent of each other and exhibit considerable state dependence. The ordered probit model provides evidence that regime discrepancies reflect an error-correction mechanism, and the discrepancies are persistent over time.
    Keywords: de facto exchange rate regimes; developing countries; simulated maximum likelihood; simultaneous equations model
    JEL: C35 F33 F41
    Date: 2006–03
  9. By: Michael Bleaney
    Abstract: Fundamentals may determine the range of real exchange rate fluctuation, through signals of misalignment, even if they are not a major influence on the level within that range. This can explain the puzzle that more open economies experience lower real exchange rate volatility. Adjustment of domestic prices to nominal exchange rate movements can account for only a small proportion of this effect. Sustainability analysis focuses on the ratio of the current account to GDP (rather than to total trade flows) as a misalignment signal, which implies narrower bounds for real exchange rates in more open economies.
  10. By: Mankiw, N Gregory; Reis, Ricardo
    Abstract: This paper explores a macroeconomic model of the business cycle in which stickiness of information is pervasive. We start from a familiar benchmark classical model and add to it the assumption that there is sticky information on the part of consumers, workers, and firms. We evaluate the model against three key facts that describe short-run fluctuations: the acceleration phenomenon, the smoothness of real wages, and the gradual response of real variables to shocks. We find that pervasive stickiness is required to fit the facts. We conclude that models based on stickiness of information offer the promise of fitting the facts on business cycles while adding only one new plausible ingredient to the classical benchmark.
    Keywords: business cycles; sticky information
    JEL: E10 E30
    Date: 2006–03
  11. By: Anders Forslund; Nils Gottfries; Andreas Westermark
    Abstract: How are wages set in an open economy? What role is played by demand pressure, international competition, and structural factors in the labour market? How important is nominal wage rigidity and exchange rate policy for the evolution of real wages and competitiveness? To answer these questions, we formulate a theoretical model of wage bargaining in an open economy and use it to derive a simple wage equation where all parameters have clear economic interpretations. We estimate the wage equation on data for aggregate manufacturing wages in Denmark, Finland, Norway, and Sweden from the mid 1960s to the mid 1990s.
    Keywords: wage formation, efficiency wage, turnover, bargaining, rent sharing, nominal wage rigidity, exchange rate policy, competitiveness
    JEL: E52 F33 F41 J31 J51 J63 J64
    Date: 2006
  12. By: Ivo J. M. Arnold; Jan J.G. Lemmen
    Abstract: This paper uses the European Commission’s Consumer Survey to assess whether inflation expectations have converged and whether inflation uncertainty has diminished following the introduction of the Euro in Europe. Consumers’ responses to the survey suggest that inflation expectations depend more on past national inflation rates than on the ECB’s anchor for price stability. The convergence in inflation expectations does not appear to be faster than the convergence in actual inflation rates. Regarding inflation uncertainty, the data indicate a relationship with country size, suggesting that within EMU, inflation uncertainty may increase in countries that have a smaller influence on ECB policy.
    Keywords: monetary union, inflation differentials, consumer survey
    JEL: D84 E31 E58
    Date: 2006
  13. By: Aoki, Kosuke
    Abstract: This paper considers the determination of aggregate price level under dispersed information. Central Bank sets policy in response to its noisy measure of the price level, and each agent makes its decisions by observing a subset of data. Information revealed to the agents and Bank is determined endogenously. It is shown that the aggregate state of the economy is not revealed perfectly to anybody but this economy behaves as if it is a representative-agent economy in which the representative agent has perfect information while the Bank has partial information. The Bank has information set affects fluctuations in the price level through its effect on policy.
    Keywords: monetary policy; uncertainty
    JEL: E52 E58
    Date: 2006–03
  14. By: Günter W. Beck (University of Frankfurt and CFS); Axel A. Weber (Deutsche Bundesbank)
    Abstract: Using a set of regional inflation rates we examine the dynamics of inflation dispersion within the U.S.A., Japan and across U.S. and Canadian regions. We find that inflation rate dispersion is significant throughout the sample period in all three samples. Based on methods applied in the empirical growth literature, we provide evidence in favor of significant mean reversion (ß- convergence) in inflation rates in all considered samples. The evidence on s-convergence is mixed, however. Observed declines in dispersion are usually associated with decreasing overall inflation levels which indicates a positive relationship between mean inflation and overall inflation rate dispersion. Our findings for the within-distribution dynamics of regional inflation rates show that dynamics are largest for Japanese prefectures, followed by U.S. metropolitan areas. For the combined U.S.-Canadian sample, we find a pattern of withindistribution dynamics that is comparable to that found for regions within the European Monetary Union (EMU). In line with findings in the so-called ‘border literature’ these results suggest that frictions across European markets are at least as large as they are, e.g., across North American markets.
    Keywords: Inflation Convergence, Deflation, ECB Monetary Policy, EMU, Regional Diversity
    JEL: E31 E52 E58
    Date: 2005–11–01
  15. By: Schabert, Andreas; van Wijnbergen, Sweder
    Abstract: Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the CB is aggressively raising the interest rate in response to higher expected inflation. The constraint on stabilizing interest rate policy is tighter the higher the primary deficit and the more open the economy is. If the government cannot borrow from abroad in its own currency, stability requires interest rate policy to be accommodating (passive). Inflation stabilization is nevertheless feasible if the CB uses an instrument not associated with default risk, e.g. money supply.
    Keywords: fiscal-monetary policy interactions; foreign debt; inflation targeting; policy implementation; sovereign default risk
    JEL: E52 E63 F41
    Date: 2006–03
  16. By: Faia, Ester; Monacelli, Tommaso
    Abstract: We analyze optimal monetary policy in a small open economy characterized by home bias in consumption. Peculiar to our framework is the application of a Ramsey-type analysis to a model of the recent open economy New Keynesian literature. We show that home bias in consumption is a sufficient condition for inducing monetary policy-makers of an open economy to deviate from a strategy of strict markup stabilization and contemplate some (optimal) degree of exchange rate stabilization. We focus on the optimal setting of policy both in the case in which firms set prices one period in advance as well as in the case in which firms set prices in a dynamic forward-looking fashion. While the first setup allows us to analytically highlight home bias as an independent source of equilibrium markup variability, the second setup allows us to study the effects of future expectations on the optimal policy problem and the effect of home bias on optimal inflation volatility. The latter, in particular, is shown to be related to the degree of trade openness in a U-shaped fashion, whereas exchange rate volatility is monotonically decreasing in openness.
    Keywords: home bias; optimal monetary policy; Ramsey planner; sticky prices
    JEL: E52 F41
    Date: 2006–03
  17. By: Kirsanova, Tatiana; Vines, David; Wren-Lewis, Simon
    Abstract: We generalise the analysis of inflation bias with dynamic Phillips curves in three respects. First, we examine the discretionary (time consistent) solution in cases where the Phillips curve has both a backward looking and forward-looking component. Second, we show that the commitment (time inconsistent) solution does not normally involve zero inflation and output at its natural rate. Instead, with a purely forward-looking Phillips curve and positive discounting, it will involve a dynamic path for inflation in which steady state inflation is below its target. In this sense, we obtain negative inflation bias. Third, we show that the timeless perspective policy has the same steady state as the commitment case, but without any short-term output gains.
    Keywords: commitment; discretion; inflation bias; timeless perspective policy
    JEL: E52 E61 E63 F41
    Date: 2006–03
  18. By: Kirsanova, Tatiana; Satchi, Mathan; Vines, David; Wren-Lewis, Simon
    Abstract: This paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal authorities. We find that fiscal policy can play an important role in reacting to inflation and output, but that not much is lost if national fiscal policy is restricted to react only to national differences in inflation and output.
    Keywords: monetary union; optimal monetary policy and fiscal policies; simple rules
    JEL: E52 E61 E63 F41
    Date: 2006–03
  19. By: Kirsanova, Tatiana; Vines, David; Wren-Lewis, Simon
    Abstract: We analyse the stability of countries within a monetary union in the face of asymmetric shocks, using a simple but widely applicable model. We show that members of the union may be subject to severe, and possibly unstable, cycles following asymmetric shocks if there is a significant backward looking element in inflation behaviour, and if real interest rates influence the level of aggregate demand. This cyclical instability can be mitigated if fiscal policy in each member country reacts to inflation differences, but it can be aggravated if fiscal feedback on debt is too strong.
    Keywords: macroeconomic stability; monetary and fiscal policies; monetary union
    JEL: E52 E61 E63 F41
    Date: 2006–03
  20. By: Andrea Colciago; Anton Muscatelli; Tiziano Ropele; Patrizio Tirelli
    Abstract: We assess the role of national fiscal policies, as automatic stabilizers, within a monetary union. We use a two-country New Keynesian DGE model which incorporates non-Ricardian consumers (as in Galì et al. 2004) and a home bias in the composition of national consumption bundles. We find that fiscal policies stabilize the aggregate economy but, in some cases, generate conflicting views among national policymakers. Finally, model determinacy requires that national fiscal feedbacks on debt accumulation be designed with reference to the debt dynamics of the entire monetary union. This is in sharp contrast with the "Brussels consensus" based on the view that the ECB alone should stabilize the union-wide economy and national fiscal policies should react to idiosyncratic shocks and to national debt levels.
    JEL: E58 E62 E63
    Date: 2006
  21. By: Matthews, Kent; Meenagh, David; Minford, Patrick; Webb, Bruce
    Abstract: Macro models generally assume away heterogeneous welfare in assessing policies. We investigate here within two aggregative models - one with a representative agent, the other a long-used forecasting model of the UK - whether allowing for differences in welfare functions (specifically between those in continuous employment and those with frequent unemployment spells) alters the rankings of monetary policies. We find that it does but that a set of policies (money supply targeting implemented by money supply control) can be found that are robust in the sense of avoiding very poor outcomes for either of the two groups.
    Keywords: heterogenous welfare; interest rate setting; money supply rules; price level targeting; robustness
    JEL: E52
    Date: 2006–04
  22. By: Mette Ersbak Bang Nielsen
    Abstract: The paper develops a New Keynesian Small Open Economy Model charac- terized by external habit formation and Calvo price setting with dynamic in‡ation updating. The model is used to analyze the e¤ect of nominal ex- change rate targeting on optimal policy and impulse responses. It is found that even moderate exchange rate concerns are capable of changing both sign and magnitude of the optimal instrument response to variables, and that whether the concern is with respect to the level or …rst di¤erence has much impact on monetary policy. Also, the cost of exchange rate stabilization in terms of output and in‡ation is evident in the model, and impulse responses under moderate exchange rate targeting are not simple combinations of those under a ‡oat and a regime that cares almost only for meeting the exchange rate target.
    Date: 2006–01–01
  23. By: Doepke, Matthias; Schneider, Martin
    Abstract: This paper shows that a zero-sum redistribution of wealth within a country can have persistent aggregate effects. Motivated by the case of an unanticipated inflation episode, we consider redistribution shocks that shift resources from old to young households. Aggregate effects arise because there are asymmetries in the reaction of winners and losers to changes in wealth. We focus on two sources of asymmetries: differences in the average age of winners and losers, and differences in their labour force status.
    Keywords: aggregate effects; inflation; redistribution
    JEL: D31 D58 E31 E50
    Date: 2006–03
  24. By: Burkhard Heer; Alfred Maussner
    Abstract: In our dynamic optimizing sticky price model, agents are heterogeneous with regard to their age and their productivity. We find that the business cycle dynamics in the OLG model in response to both a technology shock and a monetary shock are similar, but not completely identical to those found in the corresponding representative-agent model. In particular, working hours in the OLG model decrease in response to a positive technological shock, since for young workers the income effect dominates the substitution effect. This is in line with the adverse effect of productivity shocks on employment found in structural vector autoregressions.
    Keywords: fluctuations, unanticipated inflation, wealth distribution, income distribution, progressive income taxation, Calvo price staggering
    JEL: D31 D58 E31 E32 E52
    Date: 2006
  25. By: Christian Ahlin (Department of Economics Vanderbilt University); Mototsugu Shintani (Department of Economics, Vanderbilt University)
    Abstract: We revisit a foundational theoretical paper in the menu cost literature, Sheshinski and Weiss (1983), one of the few to treat stochastic inflation with persistent deviations from trend. In contrast to the original finding, we find that optimal pricing in this environment entails using different (s,S) bands in high-inflation and low-inflation states of the world. The low-inflation band is strictly contained within the high-inflation band. This revised solution has very different implications from the original one. Firms are generally risk-loving, not risk-averse, with respect to inflation. An increase in the variance of inflation increases price dispersion when inflation is high and decreases price dispersion when inflation is low. On an aggregate level, this optimal pricing would lead to bunching of prices and non-neutrality of money in the setting of Caplin and Spulber (1987). To test the main finding, we construct an establishment-level dataset from the months surrounding Mexico's Tequila crisis, in 1995. In the high-inflation state, price increases are larger and establishments allow their prices to vary more widely around their respective long-run mean relative prices. Cross-establishment price dispersion is lower, but this result seems due to decreased establishment heterogeneity rather than narrower (s,S) bands. Overall, the evidence suggests that establishments employ wider (s,S) bands in the high-inflation state.
    Keywords: (s,S) policy, neutrality of money, optimal pricing, regime switching
    JEL: D40 E31
    Date: 2006–03
  26. By: Steffen Henzel; Timo Wollmershäuser
    Abstract: We provide evidence on the fit of the hybrid New Keynesian Phillips curve for selected euro zone countries, the US and the UK. Instead of imposing rational expectations and estimating the Phillips curve by the Generalized Method of Moments, we follow Roberts (1997) and Adam and Padula (2003) and use direct measures of inflation expectations. The data source is the Ifo World Economic Survey, which quarterly polls economic experts about their expected future development of inflation. Our main findings are as follows: (i) In comparison with the rational expectations approach, backward-looking behaviour turns out to more relevant for most countries in our sample. (ii) The use of survey data for inflation expectations yields a positive slope of the Phillips curve when the output gap is used as a measure for marginal cost.
    Keywords: inflation expectations, survey data, euro zone, Phillips curve
    JEL: C52 E31
    Date: 2006
  27. By: Claudio A. Piga (Dept of Economics, Loughborough University); Enrico Bachis (Business School, Nottingham University)
    Abstract: Using more than 10 million on-line fares, we study the determinants of yearly fares’ changes in June 2002-June 2005. We verify whether airlines took advantage, after the Euro introduction, of potential inflationary pressures by increasing their fares more in routes to Eurozone nations. The evidence suggests that this was the case only for the period end 2003-end 2004. To control for other factors that may affect fares’ setting decisions, we provide insights into the effects of the takeovers of Go Fly and Buzz by EasyJet and Ryan Air, respectively. Although we generally find that fares offered immediately after the takeover by the acquiring firms were lower than the ones charged by the target firms twelve months earlier, in one case the effects of the takeover on consumers’ welfare are ambiguous.
    Keywords: Price discrimination; takeovers, Euro, changeover, low cost carriers, liberalisation.
    JEL: L11 L13 L93
    Date: 2006–03
  28. By: Weder, Mark
    Abstract: The aim of the present paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy from which we know that it exhibits indeterminacy at high degrees of relative risk aversion. I find that price stickiness reduces the scope of these sunspot equilibria: sluggish price adjustment requires degrees of relative risk aversion compatible with indeterminacy that prove too high to square with data.
    Keywords: Calvo-pricing; cash-in-advance economies; sunspot equilibria
    JEL: E31 E32
    Date: 2006–03
  29. By: Kollmann, Robert
    Abstract: This paper analyses the determinants of international asset portfolios, using a neoclassical dynamic general equilibrium model with home bias in consumption. For plausible parameter values, the model explains the fact that typical investors hold most of their wealth in domestic assets (portfolio home bias). In the model, the current account balance (change in net foreign assets) is mainly driven by fluctuations in equity prices; the current account is predicted to be highly volatile and to exhibit low serial correlation; changes in a country's foreign equity assets and liabilities are predicted to be highly positively correlated. The paper constructs current account series that include external capital gains/losses, for 17 OECD economies. The behaviour of those series confirms the theoretical predictions.
    Keywords: consumption and portfolio home bias; current account; international portfolio holdings
    JEL: F2 F3 G1
    Date: 2006–02
  30. By: Benigno, Gianluca; Thoenissen, Christoph
    Abstract: This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply side shocks. In the data, this correlation is usually small and often negative. This paper shows that this anomaly can be addressed by models that have an incomplete financial market structure and a non-traded as well as traded goods production sector.
    Keywords: consumption-real exchange rate anomaly; incomplete financial markets; non-traded goods
    JEL: F31 F41
    Date: 2006–03
  31. By: Robert A. Blecker (Department of Economics, American University)
    Abstract: This paper analyzes the effects of the real value of the dollar on aggregate investment in the US domestic manufacturing sector, using annual time-series data for 1973-2003. Estimates of investment and profit functions imply a total elasticity of between about -0.8 and -1.1 for the long-run effect of a rise in the real value of the dollar on US manufacturing investment, including both the direct effect on investment and the indirect effects via profits. These are much larger negative estimates than have been obtained in previous studies. This study also shows that models of investment that omit either exchange rates or profit variables are subject to omitted variable bias, and suggests that previous studies using panel data may have overemphasized cross-sectional differences in industry responses to exchange rate changes and therefore have underestimated the overall negative impact of dollar appreciation on US manufacturing investment.
    Keywords: investment, manufacturing, exchange rate, US dollar, profits, US economy
    JEL: E22 F31 L60 E25
    Date: 2005–08
  32. By: Troy Matheson (Reserve Bank of New Zealand)
    Abstract: Stock and Watson (1999) show that the Phillips curve is a good forecasting tool in the United States. We assess whether this good performance extends to two small open economies, with relatively large tradable sectors. Using data for Australia and New Zealand, we find that the open economy Phillips curve performs poorly relative to a univariate autoregressive benchmark. However, its performance improves markedly when sectoral Phillips curves are used which model the tradable and non-tradable sectors separately. Combining forecasts from these sectoral models is much better than obtaining forecasts from a Phillips curve estimated on aggregate data. We also find that a diffusion index that combines a large number of indicators of real economic activity provides better forecasts of non-tradable inflation than more conventional measures of real demand, thus supporting Stock and Watson's (1999) findings for the United States.
    JEL: C53 E31
    Date: 2006–02
  33. By: Takatoshi Ito (Faculty of Economics, University of Tokyo); Yuko Hashimoto (Faculty of Economics, Toyo University)
    Abstract: This paper examines intra-day patterns of the exchange rate behavior, using the "firm" bid-ask quotes and transactions of USD-JPY (Alec: The EBS notations define the base currency as the first currency in the name of the currency pair. Note that trading in EBS is done in millions of the base currency) and Euro-USD pairs recorded in the electronic broking system of the spot foreign exchange markets. The U-shape of intra-day activities is confirmed for Tokyo and London participants, but not for New York participants. Activities (deals and price changes) do not increase toward the end of business hours in the New York market, even on Fridays (ahead of weekend hours of non-trading). It is generally observed a negative correlation between the number of deals and the width of bid-ask spread during business hours, but in the first business minutes of Tokyo, bid-ask spread and activities have high correlation. It is also found that the concentration of transaction during overlapping business hours between Tokyo and London markets (London and New York markets) may arise from heterogeneous expectations among participants from different regions, that is waking up of participants of the next region in time line of the day.
    Date: 2006–03
  34. By: Minford, Patrick; Peel, David
    Abstract: The purpose in this letter is first to review briefly the empirical results on the relationship between real interest rates and real exchange rates; this empirical literature provides little support for the hypothesis of Roll that expected real interest rates are equal in general. Our second aim is to discuss the theoretical conditions that have to be met for his hypothesis to hold.
    Keywords: real exchange rates; real interest rates; roll
    JEL: C22 C51 F31
    Date: 2006–04
  35. By: von Hagen, Jürgen; Zhou, Jizhong
    Abstract: The choice of the exchange rate regime and the capital account regime are among the core macro economic policy decisions for developing countries, with important repercussions for a country's macro economic stability, ability to attract foreign capital, and international trade. Existing literature has considered the determinants of these decisions, taking the capital account regime as given when considering the exchange rate regime and vice versa. This paper provides an empirical analysis of the interaction between the two regime choices treating both as simultaneously endogenous. Using a panel data set for developing countries in the 1980s and 1990s, we estimate a simultaneous-equations panel mixed logit model for the joint determination of both choices. We find strong influences from the official, de jure exchange rate regime on capital account policies, but only weak feedback effects. Using de-facto exchange rate regimes, the influences in both directions are similar to each other.
    Keywords: capital controls; exchange rate regimes; panel mixed logit model; simultaneous equations model
    JEL: C33 C35 F20 F33
    Date: 2006–03
  36. By: Leon, Hyginus; Sarno, Lucio; Valente, Giorgio
    Abstract: We provide empirical evidence that deviations from the uncovered interest rate parity (UIP) condition display significant nonlinearities, consistent with theories based on transactions costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research.
    Keywords: foreign exchange; forward bias; nonlinearity; uncovered interest parity
    JEL: F31
    Date: 2006–03
  37. By: Andreas Röthig (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology)); Willi Semmler (Institut für Volkswirtschaftslehre (Department of Economics), Universität Bielefeld (University of Bielefeld)); Peter Flaschel (Institut für Volkswirtschaftslehre (Department of Economics), Universität Bielefeld (University of Bielefeld))
    Abstract: This paper explores the linkage between corporate risk management strategies, investment, and economic stability in an open economy with a flexible exchange rate regime. Firms use currency futures contracts to manage their exchange rate exposure - caused by balance sheet effects as in Krugman (2000) - and therefore their investments' sensitivity to currency risk. We find that, depending on whether futures contracts are used for risk reduction (i.e., hedging) or risk taking (i.e., speculation), the implied magnitudes of recessions and booms are decreased or increased. Corporate risk management can therefore substantially affect economic stability on the macrolevel.
    Keywords: Mundell-Fleming-Tobin model, foreign-debt financed investment, currency crises, real crises, currency futures, hedging, speculation.
    JEL: E32 E44 F31 F41
    Date: 2006–02
  38. By: Dino Martellato (Department of Economics, University Of Venice Cà Foscari)
    Abstract: The paper offers a brief discussion about the role of transport infrastructure in the current growth strategy followed by the EU. As a corridor is the locus where transport infrastructure and growth should interact more effectively, the central part of Corridor V is considered as an interesting case study. A growth scenario for eight countries is provided to show that wide growth disparities are to be expected during the next decade. The final part of the paper speculates about inflation differentials that are likely to emerge when growth differentials tend to persist inside a monetary union. As the Euro zone will be enlarged to host fast-growers in Corridor V such as Slovenia (maybe as soon as 2007), Hungary and the Slovak Republic, growth differentials and the single monetary policy could make it difficult to deliver a common monetary environment.
    Keywords: Growth, money demand; inflation; infrastructure, European Union
    JEL: O47 E31 E47 H54
    Date: 2006
  39. By: K C Neanidis; C S Savva
    Abstract: MThis paper examines the effects of inflation and currency substitution volatility on the average rates of inflation and currency substitution for twelve emerging market economies. Using a bivariate GARCH-in-Mean model, which accommodates for asymmetric and spillover effects of inflation and currency substitution innovations on their volatilities, we find that for the majority of the countries in the sample the variability of inflation exerts a positive influence on both the average rates of inflation and currency substitution. Similarly, higher uncertainty in currency substitution displays enhancing effects on inflation and currency substitution. These results indicate an alternative avenue that stresses the importance of currency substitution for the conduct of monetary policy in terms of price stability, and provide an additional explanation to the phenomenon of dollarization hysteresis.
    Date: 2006
  40. By: Flandreau, Marc; Jobst, Clemens
    Abstract: Using a new database for the late 19th century, when the pound sterling circulated all over the world, this paper provides the first review of critical empirical issues in the economics of international currencies. First, we report evidence in favor of the search-theoretic approach to international currencies. Second, we give empirical support to strategic externalities. Third, we provide strong confirmation of the existence of persistence. Finally, we reject the view that the international monetary system is subject to pure path dependency in that it cannot remain locked into some past equilibrium. Our conclusion is that, for the late 19th century at least, money and trade were complements.
    Keywords: dollar; international currencies; persistence; search theoretic approach to money; sterling; strategic externalities
    JEL: F31 N32
    Date: 2006–03
  41. By: Michael Bleaney
    Abstract: This paper considers the currency composition of sovereign debt in the context of risk-sharing through excusable defaults. It is shown that monetary credibility is not a sufficient condition for borrowing in domestic currency. With real exchange rate risk, debt denominated in a borrowing country’s currency can be too state-contingent to support international lending on purely reputational considerations, even when debt denominated in the lending country’s currency is viable. The model can explain the geographical pattern of bond issuance, the phenomenon of “original sin”, and the concentration of defaults on foreign-currency debt.
  42. By: Gavin Cameron; Kang Yong Tan; Prasanna Gai
    Abstract: This paper explores the determinants of sovereign bond yields during the classical gold standard period (1872-1913). Using the Pooled Mean Group methodology, we find that the main benefit of the gold standard can be seen as a short-hand device that enhanced a country`s reputation in international capital markets. By conveying important information to investors and enhancing the speed of adjustment of sovereign bond spreads to long-run equilibrium levels, the gold standard allowed country risk to be priced more effectively. In contrast to other studies, our results indicate that fundamental factors appear to be more important in determining a country`s creditworthiness in the long-run than the exchange rate regime per se.
    Keywords: Gold Standard, Sovereign Risk, Heterogeneous Dynamic Panels, Pooled Mean Group Estimator
    JEL: F33 F34 F41 N10 N20
    Date: 2006
  43. By: Michel Lelart (LEO - Laboratoire d'économie d'Orleans - - [CNRS : UMR6221] - [Université d'Orléans] - [])
    Abstract: L'environnement monétaire et financier s'est tellement modifié au niveau international qu'on ne parle plus d'un système comme de celui que gérait autrefois le Fonds Monétaire International. On évoque plutôt une « nouvelle architecture financière mondiale » au sein de laquelle la finance internationale est dominée par les marchés. Le FMI conserve la responsabilité d'en assurer une certaine régulation, c'est-à-dire d'instituer dans ce domaine une « bonne gouvernance ». Mais le Fonds est lui-même une institution qui fonctionne selon ses statuts, et ses statuts n'ont guère changé depuis soixante ans. C'est pourquoi on attend de lui qu'il s'applique à lui-même les principes d'une bonne gouvernance.
    Keywords: système monétaire international ; Fonds Monétaire International ; gouvernance ; régulation
    Date: 2006–03–30
  44. By: Kjellberg, David (Department of Economics)
    Abstract: To evaluate measures of expectations I examine and compare some of the most common methods for capturing expectations: the futures method which utilizes financial market prices, the VAR forecast method, and the survey method. I study average expectations on the Federal funds rate target, and the main findings can be summarized as follows: i) the survey measure and the futures measure are highly correlated; the correlation coefficient is 0.81 which indicates that the measures capture the same phenomenon, ii) the survey measure consistently overestimates the realized changes in the interest rate, iii) the VAR forecast method shows little resemblance with the other methods.
    Keywords: Interest rates; expectations; futures; VAR forecasts; survey data
    JEL: E43 E44 E47
    Date: 2006–02
  45. By: Chin-Shien Lin (National Chung Hsing University); Haider A. Khan (GIGS, University of Denver); Ying-Chieh Wang (Providence University); Ruei-Yuan Chang (Providence University)
    Abstract: This paper presents a hybrid model for predicting the occurrence of currency crises by using the neuro fuzzy modeling approach. The model integrates the learning ability of neural network with the inference mechanism of fuzzy logic. The empirical results show that the proposed neuro fuzzy model leads to a better prediction of crisis. Significantly, the model can also construct a reliable causal relationship among the variables through the obtained knowledge base. Compared to the traditionally used techniques such as logit, the proposed model can thus lead to a somewhat more prescriptive modeling approach towards finding ways to prevent currency crises.
    Date: 2006–04
  46. By: Franklin Allen (The Wharton School, University of Pennsylvania); Elena Carletti (Center for Financial Studies)
    Abstract: Some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk. Others have suggested that they may be undesirable if they increase the risk of financial crises. Using a model with banking and insurance sectors, we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity. However, when they face idiosyncratic liquidity risk and hedge this risk in an interbank market, credit risk transfer can be detrimental to welfare. It can lead to contagion between the two sectors and increase the risk of crises.
    Keywords: Financial Innovation, Pareto Inferior, Banking, Insurance
    JEL: G21 G22
    Date: 2005–10–09
  47. By: Franklin Allen (The Wharton School, University of Pennsylvania); Elena Carletti (Center for Financial Studies); Robert Marquez (Robert h. Smith School of Business, University of Maryland)
    Abstract: Market discipline for financial institutions can be imposed not only from the liability side, as has often been stressed in the literature on the use of subordinated debt, but also from the asset side. This will be particularly true if good lending opportunities are in short supply, so that banks have to compete for projects. In such a setting, borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending, thus creating an asset market-based incentive for banks to hold capital. Borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans, which accrue only if the loans are in fact paid o.. Since borrowers do not fully internalize the cost of raising capital to the banks, the level of capital demanded by market participants may be above the one chosen by a regulator, even when capital is a relatively costly source of funds. This implies that capital requirements may not be binding, as recent evidence seems to indicate.
    Keywords: Banking, Costly Capital, Asset Side Market Discipline
    JEL: G21 G38
    Date: 2005–01–23
  48. By: Boot, Arnoud W A; Marinc, Matej
    Abstract: We assess the influence of competition and capital regulation on the stability of the banking system. We particularly ask two questions: i) how does capital regulation affect (endogenous) entry; and ii) how do (exogenous) changes in the competitive environment affect bank monitoring choices and the effectiveness of capital regulation? Our approach deviates from the extant literature in that it recognizes the fixed costs associated with banks’ monitoring technologies. These costs make market share and scale important for the banks’ cost structures. Our most striking result is that increasing (costly) capital requirements can lead to more entry into banking, essentially by reducing the competitive strength of lower quality banks. We also show that competition improves the monitoring incentives of better quality banks and deteriorates the incentives of lower quality banks; and that precisely for those lower quality banks competition typically compromises the effectiveness of capital requirements. We generalize the analysis along a few dimensions, including an analysis of the effects of asymmetric competition, e.g. one country that opens up its banking system for competitors but not vice versa.
    Keywords: banking; capital regulation; competition
    JEL: G21 L13 L50
    Date: 2006–02
  49. By: Foucault, Thierry; Menkveld, Albert J.
    Abstract: We study changes in liquidity following the introduction of a new electronic limit order market when, prior to its introduction, trading is centralized in a single limit order market. We also study how automation of routing decisions and trading fees affect the relative liquidity of rival markets. The theoretical analysis yields three main predictions: (i) consolidated depth is larger in the multiple limit order markets environment, (ii) consolidated bid-ask spread is smaller in the multiple limit order markets environment and (iii) the liquidity of the entrant market relative to that of the incumbent market increases with the level of automation for routing decisions (the proportion of 'smart routers'). We test these predictions by studying the rivalry between the London Stock Exchange (entrant) and Euronext (incumbent) in the Dutch stock market. The main predictions of the model are supported.
    Keywords: centralized limit order book; market fragmentation; smart routers; trade-throughs; trading fees
    JEL: G10 G18 G24 L13
    Date: 2006–03
  50. By: Anthony Garratt; Gary Koop; Shaun P. Vahey (Reserve Bank of New Zealand)
    Abstract: A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this paper, we compute the probability of "substantial revisions" that are greater (in absolute value) than the controversial 2003 revision. The pre-dictive densities are derived from Bayesian model averaging over a wide set of forecasting models including linear, structural break and regime-switching models with and without heteroskedasticity. Ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures the improvement in the quality of preliminary UK macroeconomic measurements relative to the early 1990s.
    JEL: C11 C32 C53
    Date: 2006–02
  51. By: Marchetti, Domenico J.; Nucci, Francesco
    Abstract: Recent contributions have suggested that technology shocks have a negative impact on hours, contrary to the prediction of standard flexible-price models of the business cycle. Some authors have interpreted this finding as evidence in favour of sticky-price models, while others have either extended flexible-price models or disputed the empirical finding itself. In this paper we estimate a variety of alternative TFP measures for a representative sample of Italian manufacturing firms and on average find a negative effect of productivity shocks on hours. Using the reported frequency of price reviews, we show that the contractionary effect is stronger for firms with more flexible prices. Price stickiness remains a crucial factor in the response of hours even if product storability or market power are allowed for. Our results hold under alternative assumptions for the stationarity of hours per capita.
    Keywords: labour input; price rigidity; productivity shocks
    JEL: E31 E32
    Date: 2006–03
  52. By: Martha López
    Abstract: Uno de los hechos estilizados más recientes alrededor del mundo es que, después de varias décadas, se está convergiendo a una inflación baja y estable. Algunos países ya llegaron a su estado estacionario en este sentido y otros aún están en proceso de desinflación. Dado que la inflación inflinge costos en el bienestar de los agentes y frena el crecimiento económico de largo plazo, este es uno de los logros más importantes de las autoridades monetarias. No obstante, en el corto plazo el proceso desinflacionario puede tener impacto negativo sobre el producto y el empleo. Este trabajo presenta algunos criterios que son relevantes en la determinación del nivel de inflación de largo plazo y cómo el régimen de política monetaria de Inflación-objetivo permite disminuir los costos asociados al proceso desinflacionario en la medida que la política monetaria gana credibilidad.
    Keywords: Inflación, bienestar, demanda por dinero, Inflación Objetivo.
    JEL: E31 E41 E52 O42 E58
  53. By: Julian Pérez Amaya
    Abstract: Empleando un modelo de equilibrio general dinámico y estocástico para una economía pequeña y abierta con imperfecciones y rigideces en el sector no transable calibrado para Colombia, se estudia la conveniencia de que la autoridad monetaria fije como medida de inflación objetivo en su función de reacción la inflación total, la inflación doméstica o la inflación externa, en un contexto en el cual la fuente de las fluctuaciones proviene del sector externo y de choques en la productividad en cada uno de los sectores. Dada la existencia de una curva de Phillips aumentada por expectativas en el sector no transable, la política monetaria implica un trade-off entre la incertidumbre sobre la inflación y la variabilidad del producto. Se encuentra que este trade-off varía de acuerdo a la medida de inflación incluida en la función de reacción de la autoridad monetaria. Además, se encuentran los siguientes resultados: Una regla de tasa de interés que responde a la inflación no transable, es la más efectiva en reducir la variabilidad del producto, al costo de tener una inflación total más volátil que en los otros dos regímenes estudiados. En el caso de tener un régimen que responde a la inflación transable se genera más volatilidad en el producto con un nivel de volatilidad medio en la inflación. La política más efectiva para reducir la variabilidad de la inflación total, es aquella en que el banco central responde a la inflación total. Dado que este régimen genera una volatilidad media en el producto, puede ser considerado como el mejor régimen en términos de minimización de la variabilidad del producto y de la inflación total.
    Keywords: Inflación Objetivo; Economía Pequeña y Abierta; Modelos de Equilibrio General Estocástico y Dinámico; Colombia.
    JEL: E31 E32 E52 F41
  54. By: Hernando Vargas Herrera; Dpto de Estabilidad Financiera
    Abstract: El presente trabajo ilustra cómo los altos niveles de deuda pública, a través de los riesgos de mercado, pueden convertirse en una restricción para la ejecución de la política monetaria. Dependiendo de donde se financie el sector público, un nivel grande de deuda pública se refleja en una importante exposición de éste al riesgo cambiario y/o en una exposición sustancial del sistema financiero a los riesgos de mercado. Ante esta situación, un choque a la cuenta de capitales que genere una fuerte depreciación de la moneda y una caída en los precios de los títulos de deuda pública podría restringir las acciones de la autoridad monetaria. Una política restrictiva encaminada a cumplir las metas inflacionarias podría generar pérdidas importantes por valoración en el portafolio de las instituciones financieras, afectando de esta manera la estabilidad del sistema. El documento discute por qué los riesgos de mercado de la deuda pública son un problema latente en Colombia a la vez que se discute cómo podría responder el banco central ante una salida de capitales.
    Keywords: Política monetaria, riesgos de mercado.
    JEL: E44 E52
  55. By: María Clara Aristizábal Restrepo
    Abstract: El objetivo de este trabajo es explorar la relación no lineal entre el dinero y la inflación en Colombia a través de una red neuronal artificial (RNA), utilizando información mensual de la variación del IPC y del agregado monetario M3, desde enero de 1982 hasta febrero de 2005. La Constitución de 1991 le otorgo al Banco de la República la responsabilidad de velar por la estabilidad de precios. Este hecho, sumado al rezago con el que las políticas monetarias afectan a su variable objetivo, en este caso la inflación, hace indispensable para las autoridades monetarias, contar con los mejores modelos para pronosticarla y guiar sus decisiones de política. Las RNA aparecen como una excelente alternativa para lograr este propósito, dado el comportamiento intrínsecamente no lineal exhibido por la relación entre estas variables. El presente trabajo incorpora algunas innovaciones en la modelación de dinero e inflación, que permiten generar pronósticos más confiables, debido a que el modelo se aproxima con mayor exactitud a la realidad. Tales innovaciones se refieren a una selección mas sofisticada de los rezagos significativos que deben ser incorporados en el modelo, una construcción de pronósticos que actualiza su base de datos y una función de costos asimétricos para su evaluación.
    Keywords: Red Neuronal Artificial, No linealidad, Unidad Escondida, Función de Activación, Rolling de Pronósticos, Función de Perdida Asimétrica.

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