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on Central Banking |
| By: | Michael B. Devereux; Charles Engel |
| Abstract: | This paper develops a view of exchange rate policy as a trade-off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations, and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment. We show that optimal nominal exchange rate volatility will reflect these competing objectives. The key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness, the elasticity of substitution between home and foreign goods, and the amount of home bias in production. Quantitatively, we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations. Moreover, we find that the relationship between price stickiness and optimal exchange rate volatility may be non-monotonic. |
| JEL: | F3 F4 E5 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12215&r=cba |
| By: | Michael B. Devereux; Charles Engel |
| Abstract: | Both empirical evidence and theoretical discussion have long emphasized the impact of “news” on exchange rates. In most exchange rate models, the exchange rate acts as an asset price, and as such responds to news about future returns on assets. But the exchange rate also plays a role in determining the relative price of non-durable goods when nominal goods prices are sticky. In this paper we argue that these two roles may conflict with one another. If news about future asset returns causes movements in current exchange rates, then when nominal prices are slow to adjust, this may cause changes in current relative goods prices that have no efficiency rationale. In this sense, anticipations of future shocks to fundamentals can cause current exchange rate misalignments. Friedman’s (1953) case for unfettered flexible exchange rates is overturned when exchange rates are asset prices. We outline a series of models in which an optimal policy eliminates the effects of news on exchange rates. |
| JEL: | F3 F4 E5 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12213&r=cba |
| By: | Charles Engel; Akito Matsumoto |
| Abstract: | This paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some goods prices are set without full information of the state. We show that temporarily sticky nominal goods prices can have large effects on equity portfolios. Home and foreign portfolios are not identical in equilibrium. In response to technology shocks, sticky prices generate a negative correlation between labor income and the profits of domestic firms, biasing portfolios in favor of home equities. In contrast, under flexible prices, labor income and the profits of the domestic firms are positively correlated. Even a small amount of nominal price stickiness can generate these portfolio differences, depending on the diversification role played by the terms of trade. Returns on human capital and equities may be positively correlated under sticky prices when the source of shocks is monetary, but this risk is hedged through nominal assets rather than through equities. |
| JEL: | F31 F41 G11 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12214&r=cba |
| By: | Michel Juillard (CEPREMAP and University Paris 8, 2 rue de la Liberté, 93526 Saint-Denis Cedex 02, France.); Philippe Karam (International Monetary Fund (IMF), 700 19th Street NW, Washington, DC 20431, United States.); Douglas Laxton (International Monetary Fund (IMF), 700 19th Street NW, Washington, DC 20431, United States.); Paolo Pesenti (NBER, CEPR and Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, United States.) |
| Abstract: | We develop and estimate a stylized micro-founded model of the US economy. Next we compute the parameters of a simple interest rate policy rule that maximizes the unconditional mean of utility. We show that such a welfare-based rule lies close to the Taylor efficiency frontier. A counterfactual analysis assesses to what extent using such a rule as a guideline for monetary policy would have helped to avoid the inflationary swings of the 1970s and reduce the severity of boom and bust cycles. The paper also provides estimates of the welfare implications of business cycle variability and discusses their relevance. |
| Keywords: | Competition, Markups, Monetary Policy, Taylor Rule. |
| JEL: | C51 E31 E52 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060613&r=cba |
| By: | Sebastian Edwards |
| Abstract: | During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include, among other: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union has not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks have been amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries. |
| JEL: | F02 F43 O11 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12229&r=cba |
| By: | Barry Eichengreen; Poonam Gupta; Ashoka Mody |
| Abstract: | Could a high-access, quick-disbursing “insurance facility” in the IMF help to reduce the incidence of sharp interruptions in capital flows (“sudden stops”)? We contribute to the debate on this question by analyzing the impact of conventional IMF-supported programs on the incidence of sudden stops. Correcting for the non-random assignment of programs, we find that sudden stops are fewer and generally less severe when an IMF arrangement exists and that this form of “insurance” works best for countries with strong fundamentals. In contrast there is no evidence that a Fund-supported program attenuates the output effects of capital account reversals if these nonetheless occur. |
| JEL: | F02 F32 F34 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12235&r=cba |
| By: | Masanao Aoki (Department of Economics, University of California, Los Angeles) |
| Abstract: | This paper discusses a symptotic behavior of one-and two-parameter Poisson-Dirichlet models, that is, Ewens models and its two parameter extensions by Pitman, and show that their a symptotic behavior arevery di?erent. The paper shows asymptotic properties of a class of one-and two-parameter Poisson-Dirichlet distribution models are drastically di?erent. Convergence behavioris expressedin termsof generalized Mittag-Le?er distributions in the statistics literature. The coe?cients of variations of suitably normalized number of clusters andof clusters of speci?c sizesdo not vanish in the two-parameter version, but they do in one-parameter Ewens models. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2006cf425&r=cba |
| By: | Willem H. Buiter (European Institute, London School of Economics, Houghton Street, London WC2A 2AE, United Kingdom.) |
| Abstract: | The paper studies the inflation rate associated with optimal monetary and fiscal policy in a number of standard dynamic stochastic general equilibrium models with nominal price rigidities. While the focus is on Calvo-style nominal price contracts with a range of indexation rules for constrained price setters, the conclusions have much wider validity - (1) Regardless of whether nominal price and/or wage rigidities are due to New-Keynesian, Old-Keynesian or sticky-information Phillips curves, optimal inflation policy requires the validation, that is, the full accommodation of core producer inflation by actual producer price inflation;(2) Optimal monetary policy implements Bailey-Friedman optimal quantity of money rule. No welfare-economics based argument for price stability as an objective (let alone the overriding objective) of monetary policy can be established for the class of DSGE models with nominal rigidities for which they have been proposed by Woodford and others. |
| Keywords: | Inflation targeting, Nominal price rigidities, New Keynesian macroeconomics, DSGE. |
| JEL: | E3 E4 E5 E6 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060609&r=cba |
| By: | Rachel Reeves; Michael Sawicki |
| Abstract: | The effectiveness of a central bank's monetary policymaking is determined by the merit of its policy actions and their perceived credibility. Since the 1990s central banks have placed more emphasis on clear communications and transparency as additional levers to help achieve their goals. In this paper we examine how UK financial markets react to Bank of England communication. We might expect interest rate expectations, and potentially other asset prices, to react to official communication if such communication helps inform market participants. We find evidence that the publication of the Minutes of the Monetary Policy Committee meetings and the Inflation Report significantly affect near-term interest rate expectations, an effect particularly visible in intraday data. Speeches and parliamentary committee hearings appear to have less of an impact. Our results for the UK are arguably less strong than Kohn and Sack's (2003) findings for US Federal Reserve communication. Although differences in institutional frameworks between the UK and US mean communications are not directly comparable, our results might also reflect the different mandates of the FOMC and the MPC, with the Federal Reserve having greater freedom to interpret its objectives. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mpc:wpaper:15&r=cba |
| By: | Luca Onorante |
| Abstract: | Since the Helsinki European Council of December 1999, a process of increased coordination of fiscal policies in the area of the Euro seems to be on its way. In this paper I examine this process from the point of view of the independence of the European Central Bank (ECB). The interaction of the governments and the ECB is addressed in a game theoretical framework. First, the conditions under which the national governments are able to put pressure on the ECB are made explicit. Then the main question is addressed: would a greater fiscal coordination reduce or increase the capacity of the monetary authority of targeting long run inflation? Formal and informal, discretional (positive) and rule-based (negative) coordination and their interactions are examined as possible solutions of the game. I conclude that the main point is not how much fiscal coordination is there, but the form it takes. It turns out that a mix of informal political coordination and binding rules is the one that best preserves the independence of the ECB. For negative coordination, it is shown that a simple change in the definition of "excessive deficit" can at the same time allow more stabilization of output after a shock and a better control of inflation by the ECB. |
| Keywords: | European Montary Union, European Central Bank, game theory, fiscal policy, monetary policy, policy coordination |
| JEL: | C7 E0 E3 E6 H5 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/9&r=cba |
| By: | Jim Engle-Warnick; Nurlan Turdaliev |
| Abstract: | We experimentally test whether a class of monetary policy decision rules describes decision making in a population of inexperienced central bankers. In our experiments, subjects repeatedly set the short-term interest rate for a computer economy with inflation as their target. A large majority of subjects learn to successfully control inflation. We find that Taylor-type rules fit the choice data well, and are instrumental in characterizing heterogeneity in decision making. Our experiment is the first to begin to organize data experimentally with an eye on monetary policy rules for this, one of the most widely watched and analyzed decisions in economics. <P>Nous avons mené une étude expérimentale dans le but de savoir si les règles de décision en matière de politique monétaire sont utilisées par les banquiers inexpérimentés au sein des banques centrales. Au cours de nos expériences, des sujets établissaient un taux d’intérêt à court terme dans un contexte d’économie informatisée dans le but de maîtriser l’inflation. Une grande majorité des sujets ont appris à maîtriser efficacement l’inflation. Nous sommes d’avis que les règles du type Taylor correspondent bien aux données liées aux choix et contribuent grandement à établir l’hétérogénéité du processus de décision. Notre étude est la première à recourir à l’organisation expérimentale des données sans, pour autant, perdre de vue les règles liées à la politique monétaire qui fait le plus l’objet de surveillance et d’analyse dans le domaine de l’économie. |
| Keywords: | experimental economics, monetary policy, repeated games, Taylor rule, économie expérimentale, jeux répétés, politique monétaire, règle Taylor |
| JEL: | C91 E42 |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2006s-05&r=cba |
| By: | Edwin M. Truman (Institute for International Economics); Anna Wong (Institute for International Economics) |
| Abstract: | Rumors about the actual or potential currency diversification of countries’ foreign exchange holdings out of dollars are not a new phenomenon. This working paper argues that such concerns about reserve diversification are exaggerated. We present evidence that the extent of actual diversification has been modest to date. Nevertheless, the potential for reserve diversification adds volatility to foreign exchange markets and can catalyze abrupt exchange rate movements. We argue that policymakers acting in their own national interests can do something constructive to reduce the volatility introduced into foreign exchange and financial markets by rumors of large-scale international foreign exchange reserve diversification. We propose the voluntary adoption by major foreign exchange reserve holders in particular of an International Reserve Diversification Standard consisting of two elements: (1) routine disclosure of the currency composition of official foreign exchange holdings and (2) a commitment by each adherent to adjust gradually the actual currency composition of its reserves to any new benchmark for those holdings. |
| Keywords: | Foreign Exchange Reserves, Central Banks, International Investment and Long-Term Capital Movements, International Monetary Arrangements and Institutions |
| JEL: | F31 E58 F21 F33 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp06-2&r=cba |
| By: | Stefano Schiavo (University of Trento) |
| Abstract: | The paper analyzes the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets: we find evidence that capital markets integration exerts a positive effect on output correlation. This in turn has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries fit better standard OCA criteria; second, it provides European policymakers with yet another reason to purse financial integration in the euro area (and in prospective members as well). |
| Keywords: | business cycle; EMU; endogeneity; integration; optimum currency areas; |
| JEL: | E32 E44 F36 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:25&r=cba |
| By: | Elke Holst (German Institute for Economic Research, DIW Berlin); Mechthild Schrooten (Institute of Economic Research, Hitotsubashi University, Tokyo and German Institute for Economic Research, DIW Berlin) |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:fln:wpaper:009&r=cba |
| By: | Ari Aisen (International Monetary Fund); Francisco José Veiga (Universidade do Minho - NIPE) |
| Abstract: | The purpose of this paper is to empirically determine the causes of the worldwide diversity of inflation volatility. We show that higher degrees of political instability, ideological polarization and political fragmentation are associated with higher inflation volatility. |
| Keywords: | Inflation, volatility, political instability, institutions. |
| JEL: | E31 E63 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:2/2006&r=cba |
| By: | Pierre-Guillaume Méon (DULBEA, Université libre de Bruxelles, Brussels) |
| Abstract: | This note studies the volatility of the policy chosen by a committee whose members’ preferences are volatile, due to common and individual preferences shocks. It is shown that majority voting mitigates the latter but not the former. The volatility of the policy is smaller the smaller the volatility of members’ preferences, smaller the larger the size of the committee, and smaller than if it was chosen by a single member. The results hold in a context of uncertainty and with multidimensional issues. |
| Keywords: | committee, majority voting, uncertainty, volatility |
| JEL: | D71 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:06-05rs&r=cba |
| By: | Paola Manzini (Queen Mary, University of London and IZA Bonn); Marco Mariotti (Queen Mary, University of London); Luigi Mittone (University of Trento) |
| Abstract: | In this paper we formulate and investigate experimentally a model of how individuals choose between time sequences of monetary outcomes. The theoretical model assumes that a decision-maker uses, sequentially, two criteria to screen options. Each criterion only permits a decision between some pairs of options, while the other options are incomparable according to that criterion. When the first criterion is not decisive, the decision maker resorts to the second criterion to select an alternative. This type of decision procedures has encountered the favour of several psychologists, though it is quite under-explored in the economics domain. In the experiment we find that: 1) traditional economic models based on discounting alone cannot explain a significant (almost 30%) proportion of the data no matter how much variability in the discount functions is allowed; 2) our model, despite considering only a specific (exponential) form of discounting, can explain the data much better solely thanks to the use of the secondary criterion; 3) our model explains certain specific patterns in the choices of the ‘irrational’ people. We can safely reject the hypothesis that anomalous behaviour is due simply to random ‘mistakes’ around the basic predictions of discounting theories: the deviations are not random and there are clear systematic patterns of association between ‘irrational’ choices. |
| Keywords: | time preference, time sequences, negative discounting |
| JEL: | C91 D9 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2129&r=cba |
| By: | D. Johannes Juttner (Department of Economics, Macquarie University); Wayne Leung (Department of Economics, Macquarie University) |
| Abstract: | This study contributes, on the basis of economic theory, to an explanation of exchange rate volatilities for a large number of currencies. We relate daily changes in GARCH(1,1) volatilities of exchange rates to the volatility changes of several of their presumed fundamental economic determinants. The use of highfrequency data limits the choice of the explanatory economic variables that can be included. The first differences of GARCH(1,1) volatilities of share and bond price indices proxy for wealth uncertainty and the latter, in addition, for interest rate variability. Likewise, first differences of the gold price volatility, as an additional determinant, are related to exchange rate volatilities of two commodity currencies in the sample. The estimates produce coefficients with the expected signs and statistical significance. |
| Keywords: | Exchange rate volatilities, volatility relationships, GARCH modelling |
| JEL: | F31 C22 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:mac:wpaper:0405&r=cba |
| By: | Evan Gatev; Til Schuermann; Philip E. Strahan |
| Abstract: | Liquidity risk in banking has been attributed to transactions deposits and their potential to spark runs or panics. We show instead that transactions deposits help banks hedge liquidity risk from unused loan commitments. Bank stock-return volatility increases with unused commitments, but the increase is smaller for banks with high levels of transactions deposits. This deposit-lending risk management synergy becomes more powerful during periods of tight liquidity, when nervous investors move funds into their banks. Our results reverse the standard notion of liquidity risk at banks, where runs from depositors had been seen as the cause of trouble. |
| JEL: | G18 G21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12234&r=cba |
| By: | Marco Vega (Central bank of Peru and London School of Economics); Diego Winkelried (Central bank of Peru and Cambridge University) |
| Abstract: | Este trabajo revisa la evidencia existente sobre el impacto de la adopción del esquema de metas explícitas de inflación (MEI) sobre la dinámica de la inflación. En particular, se reporta la evaluación econométrica de Vega y Winkelried (2005) y se compara sus resultados con aquellos obtenidos de estudios recientes sobre la materia. Un resultado general de esta revisión es que los efectos sobre la inflación son leves o estadísticamente no significativos cuando un país desarrollado es quien adopta el esquema MEI mientras que los efectos son bastante beneficioso cuando un país en desarrollo es quien adopta el esquema. |
| Keywords: | Metas explícitas de inflación. |
| JEL: | C50 E42 E52 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2006-001&r=cba |
| By: | Nicolas Barbaroux (CREUSET (EA 3724) - Centre de Recherche Economique de l'Université de Saint Etienne - [Université Jean Monnet - Saint-Etienne]) |
| Abstract: | The notion of rule surrounded the gold standard system. For instance, it is not seldom to present the gold standard system under the 1925 Keynesian expression as the rules of the game. However, it is nowadays quite crystal clear that gold standard system was not such a self regulating system in which automatic rules prevailed (Eichengreen 1996; Mouré 2001). At the same time, the behaviour of the French bank of issue in the inter-war period gave rise to polemic (Nurkse 1944). The paper proposes to examine the conduct of the French monetary management in the inter-war period by focusing on the context and behaviour adopted by Bank of France. Three points emerge from the study. (1) Before explaining the way franc was managed, we need to make a short recall on the state of the French economy after WWI and on the way the French banker system functioned. (2) The monetary management implemented by the Bank of France is both characterized by a discount rate policy and by the total rejection of open-market operations. This way of managing the franc can be explained by the French historical background and by the conflict between the two leading economists of the moment: C.Rist and P.Quesnay. (3) In order to illustrate the French monetary policymaking the paper will expose the peculiar policy implemented by Bank of France between 1928 and 1932. This way of behaving -based on the gold gathering at the expense of the other countries- was roughly criticized in Europe since France was accused of being responsible of the 1930's international depression. |
| Keywords: | Histoire économique; Politique monétaire; Banque de France |
| Date: | 2006–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:ujm-00000002_v1&r=cba |
| By: | Casari, Marco |
| Abstract: | This study presents experimental data on pre-commitment and flexibility where monetary rewards are delivered with an actual delay. Preference for pre-commitment is defined as willingness to pay a cost to restrict the size of the choice set available in the future. Preference for flexibility is defined as willingness to pay a cost to enlarge the choice set available in the future. The existing empirical evidence about these phenomena is rather limited. On the other hand, models of intertemporal choice differ widely on these issues, with some predicting only demand for pre-commitment, others only demand for flexibility, while others neither one. We find that two-thirds of the subjects cannot be accounted for with the canonical exponential discounting model and that there is demand for both pre-commitment and flexibility. |
| Keywords: | experiments ; time preferences ; time inconsistency ; preference for commitment ; preference for flexibility ; discounting |
| JEL: | C91 D90 D81 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1183&r=cba |
| By: | Leonardo Villar Gómez; David M. Salamanca Rojas |
| Abstract: | En este trabajo se desarrolla un modelo teórico con fundamentos microeconómicos sobre el funcionamiento del mercado de crédito en una economía abierta. El modelo permite identificar los canales a través de los cuales el sistema financiero doméstico puede propagar y amplificar los ciclos inducidos por fluctuaciones en las tasas de interés internacionales y es consistente con la observación empírica de una correlación positiva entre el crédito en pesos al sector privado y los flujos de capitales que se puede apreciar en el caso colombiano. Con base en el modelo se muestra que la utilización activa de los coeficientes de encaje bancario con propósitos contracíclicos, tal como fue sugerida por Edwards y Vegh (1997), puede ser contraproducente. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:001035:002495&r=cba |
| By: | Martha A. Starr (Department of Economics, American University); Rasim Yilmaz (Dumlupinar University) |
| Abstract: | Recent banking crises in emerging-market countries have renewed debates about deposit insurance. Because insurance erodes banks’ incentives to manage risks prudently, some argue that its elimination would improve bank stability. Yet eliminating insurance could be destabilizing if it recreates risks of self-fulfilling runs. This paper examines dynamics of depositor behavior during a set of runs on Turkey’s Special Finance Houses, an uninsured sub-sector of Islamic banks. Detailed data on withdrawals are analyzed in a vector-autoregressive framework that enables us to distinguish between informational and self-fulfilling elements of runs. We find that both types of dynamics were at work during the runs, suggesting a role for deposit insurance, judiciously used, in ruling out expectational problems that fuel tendencies to run. |
| Keywords: | bank runs, deposit insurance, Islamic banks, financial development |
| JEL: | G21 G28 O16 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0806&r=cba |
| By: | Paola Dongili (Dipartimento di Scienze economiche (Università di Verona)); Angelo Zago (Dipartimento di Scienze economiche (Università di Verona)) |
| Abstract: | The problem of taking into account the quality attributes of different goods has a long tradition in economics A strand of literature deals with the environmental impacts in the measurement of efficiency and productivity growth. Färe et al. (1989) indeed started what has become now a relatively vast literature extending efficiency measurement when some outputs are undesirable. The central notion of this paper is that of weak disposability of outputs. To credit firms for their effort to cut off on pollutants, technology is modeled so that it can handle the case when the reduction of some (bad) outputs requires the reduction of some of the other outputs and/or the increase of inputs.Besides the concept of output weak disposability, an interesting and useful idea for this setting is the directional distance function, a generalization of the radial distance function introduced to production economics by Chambers, Chung and Färe (1996). In this fashion it is possible to evaluate the performance of the firms that need to increase the production of the good outputs and decrease that bad outputs. |
| JEL: | G |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:28&r=cba |
| By: | Emilie Laffiteau (CATT - UPPA); Jean-Marc Montaud (CATT – UPPA et CED / IFReDE-GRES, Université Montesquieu Bordeaux IV) |
| Abstract: | Cette analyse montre l’impact du choix du régime de Currency Board sur la pauvreté des ménages en Argentine. Un tel régime monétaire introduisant des contraintes majeures sur l’économie, notamment sur le marché du travail, nous partons d’une désagrégation des ménages argentins identifiant leurs différentes modalités d’insertion sur ce marché et dégageant leur vulnérabilité respective en termes de pauvreté. Dans un second temps, nous construisons un modèle EGC financier incorporant les mécanismes du Currency Board, les principales caractéristiques de l’économie argentine, ainsi que les indicateurs de pauvreté et d’inégalités des différents groupes de ménages. Trois types de simulations sont effectuées pour retracer les différentes conditions économiques qu’a pu connaître l’Argentine à la fin des années quatre-vingt dix : renforcement des politiques d’austérité, instabilité financière et ouverture commerciale. Elles montrent comment réagit cette économie contrainte par le Currency Board et quelles sont les répercussions en termes de pauvreté et d’inégalités. This study shows the impact of the choice of a Currency Board regime on household’s poverty in Argentina. Such monetary system introducing strong constraints on the economy, in particular on its labour market, we make an argentines households stratification witch identify their different occupational integration conditions on its market and show their respective vulnerability on poverty. Secondly, we build a financial general equilibrium model which includes Currency Board mechanisms, the main features of the argentine economy and inequality and poverty indicators. Three types of simulations illustrate the economic conditions that go through Argentina in the end of the nineties: austerity politics strengthening, financial instability and commercial liberalisation. Each simulation explains how the argentine economy, constraint by the Currency Board, react and show the consequences on poverty and inequality. (Full text in french) |
| JEL: | D58 E42 I32 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mon:ceddtr:128&r=cba |
| By: | Frode Brevik; Manfred Gärtner |
| Abstract: | We analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically. |
| Keywords: | Banking secrecy, tax evasion, withholding tax, welfare effects |
| JEL: | E2 E62 F42 H2 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2006:2006-10&r=cba |
| By: | Maarten C.W. Janssen (Erasmus Universiteit Rotterdam) |
| Abstract: | This paper gives an overview and evaluates the literature on Microfoundations.<P> |
| Keywords: | Representative Agents; New Keynesian Economics; and New Classical Economics |
| JEL: | B22 D40 E00 |
| Date: | 2006–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20060041&r=cba |
| By: | Pontus Rendahl |
| Abstract: | Dynamic models with inequality constraints pose a challenging problem for two major reasons: Dynamic Programming techniques often necessitate a non established differentiability of the value function, while Euler equation based techniques have problematic or unknown convergence properties. This paper aims to resolve these two concerns: An "envelope theorem" is presented that establishes the differentiability of any element in the convergent sequence of approximate value functions when inequality constraints may bind. As a corollary, convergence of an iterative procedure on the Euler equation, usually referred to as time iteration, is ascertained. This procedure turns out to be very convenient from a computational perspective; dynamic economic problems with inequality constraints can be solved reliably and extremely efficiently by exploiting the theoretical insights provided by the paper. |
| Keywords: | Inequality constraints; Envelope theorem; Recursive methods; Time iteration |
| JEL: | C61 C63 C68 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/6&r=cba |
| By: | Carlos Cortinhas (Universidade do Minho - NIPE) |
| Abstract: | This paper aims to investigate whether structural shocks among ASEAN countries are becoming more symmetrical over time, thus indicating whether this region is becoming better prepared to introduce a common monetary policy. For that purpose a dynamic space-state model that complements the conventional Structural VAR models used in the existing literature was estimated by using the Kalman filter so that the evolution of the degree of shock symmetry and, therefore, the evolution in the degree of convergence could be identified over time, distinguishing between a country’s convergence with a regional partner and a more general trend of convergence with the rest of the world. The results showed that in the majority of cases there has been an increase in the degree of convergence of demand shocks in recent years. More importantly, it also showed an increase in divergence in supply shocks for most cases since the beginning of the 90’s even when taking into account the Asian Financial Crisis. This is especially true for the periphery countries suggesting that the Philippines and Thailand are not only not converging but actually diverging from the core group. These results have important implications for the prospects of the creation of a common monetary policy in the region. |
| Keywords: | Optimum currency areas; Monetary integration; Asymmetric shocks; Convergence; Asean. |
| JEL: | F15 F33 E42 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:3/2006&r=cba |
| By: | Lahura Erick (Central bank of Peru) |
| Abstract: | El propósito del presente trabajo es investigar el efecto traspaso (pass-through) de la tasa de interés interbancaria sobre las tasas de interés en moneda doméstica y su relación con la política monetaria en el Perú, considerando el periodo 1995-2004. Específicamente, se evalúan las siguientes hipótesis: (a) el traspaso de largo plazo es aún incompleto; sin embargo, se ha incrementado luego del anuncio del corredor de tasas de interés de referencia (febrero de 2001) y se ha reforzado con la adopción del esquema de Metas Explícitas de Inflación o MEI (enero de 2002); (b) el anuncio del corredor de tasas de interés por parte del banco central ha incrementado la velocidad de ajuste de las tasas de mercado ante cambios en la tasa de referencia; y (c) en el corto plazo, las tasas de interés de mercado responden asimétricamente cuando la tasa de interés de referencia sube o baja. Las hipótesis fueron evaluadas a través de un modelo de corrección de errores no lineal-asimétrico. Los resultados de las estimaciones muestran evidencia a favor de las hipótesis planteadas. De esta manera, se puede inferir que la política monetaria ha mostrado una evolución favorable en términos de su impacto sobre las tasas de interés de mercado, desde el anuncio del corredor de referencia y la adopción del esquema MEI. |
| Keywords: | Tasa de interés, efecto traspaso, política monetaria, cointegración, modelo de corrección de errores, no linealidad, asimetrías. |
| JEL: | E43 E50 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-008&r=cba |
| By: | Alberto Humala (Central Bank of Peru) |
| Abstract: | Este documento presenta una evaluación econométrica de la paridad descubierta de tasas de interés (PDI) para instrumentos financieros peruanos y documenta las principales regularidades empíricas respecto a esta relación. La información contenida en los diferenciales de tasas de interés respecto a la depreciación esperada es evaluada bajo distintas representaciones econométricas. En el caso peruano, si se consideran aproximaciones lineales y se incluyen períodos en los cuales las expectativas de inflación son relativamente altas, la paridad se cumpliría en promedio en el corto plazo (contrario a la evidencia internacional). En períodos de estabilidad de precios (bajo esquemas de metas de inflación), por el contrario, representaciones lineales muestran evidencia contraria a la PDI. En ambos escenarios, los modelos de cambios de régimen distinguen, sobre un mismo tamaño de muestra, entre períodos consistentes con la PDI y aquellos en que ésta no es tan relevante. En particular, los modelos Markov de regímenes cambiantes señalan la importancia de la volatilidad de los movimientos cambiarios para evaluar la validez de la PDI. |
| Keywords: | Paridad descubierta de tasas de interés, diferenciales de tasas de interés, tipo de cambio, modelos de regímenes cambiantes Markov. |
| JEL: | F21 F31 F41 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2006-002&r=cba |
| By: | Ágnes Horváth (Magyar Nemzeti Bank); Zoltán M. Jakab (Magyar Nemzeti Bank); Gábor P. Kiss (Magyar Nemzeti Bank); Balázs Párkányi (Magyar Nemzeti Bank) |
| Abstract: | In this paper we investigate the possible effects of fiscal tightening in Hungary from two perspectives. First, simulations in an estimated neo-Keynesian model are used to characterise the effects of different scenarios for fiscal consolidations. We show that the composition of fiscal shocks is important for both the economic outcome and monetary policy. These simulations suggest a modest output cost of fiscal consolidation. Then we take a closer look at the non-Keynesian effects and their relevance for Hungary in a qualitative way. In our review of non-Keynesian channels of fiscal adjustments we conclude that expansionary effects are likely to become evident only in the medium or long run, rather than immediately after measures are taken. |
| Keywords: | Keynesian, non-Keynesian effects, expansionary fiscal adjustment, Monetary policy reactions, Model simulations. |
| JEL: | E17 E52 E61 E62 E63 E65 H30 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2006/52&r=cba |
| By: | Daehoon Nahm (Department of Economics, Macquarie University) |
| Abstract: | The present paper estimates upper-level substitution and new-goods bias in the Korean Consumer Price Index (CPI). It has been estimated that the upper-level substitution bias in the CPI alone increased the inflation rate by 0.51 percentage points per year over the thirteen-year period between 1990 and 2002. The new-goods bias further increased the inflation rate by 0.17 and 0.13 percentage points per year between 1990 1995 and 1995 2000 respectively. The new Chained Laspeyres index series that is based on annually-updated weights has been found to correct only less than half of the upper-level substitution bias. |
| JEL: | C43 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mac:wpaper:0602&r=cba |
| By: | Jesús Antonio Bejarano Rojas |
| Abstract: | En este artículo se estiman, para Colombia, los parámetros profundos de la curva de Phillips neokeynesiana propuesta por Gali y Gertler (1999). La estimación de los parámetros implica que más del setenta por ciento de las firmas en Colombia mantiene sus precios fijos durante aproximadamente tres trimestres. Adicionalmente, se estiman los parámetros estructurales que soportan la relación positiva que hay entre la brecha del costo marginal real y la brecha del producto a partir de un modelo de equilibrio general propuesto por Gali y Monacelli (2002). Los resultados obtenidos muestran una relación positiva de corto plazo entre el costo marginal real y el producto en Colombia. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:001035:002493&r=cba |
| By: | Luz Adriana Flórez; Carlos Esteban Posada; José Fernando Escobar |
| Abstract: | A fin de interpretar el desempeño del crédito bancario observado durante los años noventa y principios del actual decenio en Colombia, se construyó un modelo teórico de equilibrio general dinámico. Además, se puso a prueba econométrica la ecuación generada en tal modelo que establece una relación de equilibrio entre depósitos, crédito y tasa de interés activa (con datos del período 1990:01- 2004:04). Las pruebas econométricas y los impulsos-respuestas (estos últimos obtenidos gracias a la metodología de «tendencias comunes») permiten considerar plausibles dos hipótesis: a) existe una relación de equilibrio entre depósitos, crédito y tasa de interés activa como la que se deduce del modelo teórico, y b) la crisis de finales de los años noventa fue una ruptura transitoria del equilibrio y no un cambio estructural, así que la situación actual (junio de 2004) puede entenderse como una etapa de retorno al equilibrio. |
| Date: | 2005–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:001035:002492&r=cba |