nep-cba New Economics Papers
on Central Banking
Issue of 2006‒06‒17
29 papers chosen by
Alexander Mihailov
University of Essex

  1. Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence By Filippo Altissimo; Michael Ehrmann; Frank Smets
  2. Is European Monetary Policy Appropriate for the EMU Member Countries? A Counterfactual Analysis By Bernd Hayo
  3. Stability First: Reflections Inspired by Otmar Issing%u2019s Success as the ECB%u2019s Chief Economist By Vitor Gaspar; Anil K. Kashyap
  4. MODELING THE EURO OVERNIGHT RATE By Ángel León; Francis Benito; Juan Nave
  5. Price Rigidity and the Volatility of Vacancies and Unemployment By Rafael Domenech; Javier Andres; Javier Ferri
  6. Constructing Internationally Comparable Real Income Aggregates by Combining Sparse Benchmark Data with Annual National Accounts Data. A State-Space Approach By Howard E. Doran; D.S. Prasada Rao; Alicia N. Rambaldi
  7. The Open Economy Consequences of U.S. Monetary Policy By John Bluedorn; Christopher Bowdler
  8. The impact of monetary policy signals on the intradaily Euro-dollar volatility. By Darmoul Mokhtar
  9. Monetary Policy When Potential Output is Uncertain: Understanding the Growth Gamble of the 1990s By Yuriy Gorodnichenko; Matthew D. Shapiro
  10. Market Reactions to Central Bank Communication Policies : Reading Interest Rate Options Smiles. By Marie Brière
  11. Monetary Policy, Exchange Rate Overshooting, and Endogenous Physical Capital By Habib Ahmed; C. Paul Hallwood; Stephen M. Miller
  12. Factors Behind Low Long-Term Interest Rates By Rudiger Ahrend; Pietro Catte; Robert Price
  13. Efficient Monetary Allocations and the Illiquidity of Bonds. By Boel, Paola; Camera, Gabriele
  14. Optimal Monetary and Exchange Rate Policies in Crisis-Prone Small Open Economies By Rajesh Singh; Joydeep Bhattacharya
  15. Adopting a common currency basket arrangement into the 'ASEAN plus three' By Eiji Ogawa; Kentaro Kawasaki
  16. The IMF and the Liberalization of Capital Flows By Joseph P Joyce; Ilan Noy
  17. Inflation Targeting and the Role of Exchange Rate Pass-through By Reginaldo P. Nogueira Jnr
  18. Japan's Phillips Curve Looks Like Japan By Gregor Smith
  19. Currency Mismatches, Default Risk, and Exchange Rate Depreciation: Evidence from the End of Bimetallism By Michael D. Bordo; Christopher M. Meissner; Marc D. Weidenmier
  20. Banks'procyclicality behavior : does provisioning matter ?. By Vincent Bouvatier; Laetitia Lepetit
  21. Nonstandard Forms and Measures of Employment and Unemployment in Transition: A Comparative Study of Estonia, Romania, and Russia By J. David Brown; John S. Earle; Vladimir Gimpelson; Rostislav Kapeliushnikov; Hartmut Lehmann; Almos Telegdy; Irina Vantu; Ruxandra Visan; Alexandru Voicu
  22. Resolving Macroeconomic Uncertainty in Stock and Bond Markets By Alessandro Beber; Michael W. Brandt
  23. Generalized Method of Moments and Inverse Control. By Gregory E. Givens; Michael K. Salemi
  24. Anonymous Markets and Monetary Trading. By Aliprantis, C.D.; Camera, Gabriele; Puzzello, D.
  25. Exchange rates and transition economies` export prices: is there evidence for pricing-to-market behaviour? By Emilia Penkova
  26. Pricing-to-market or hysteresis?: an empirical investigation of German exports By Emilia Penkova
  27. GDP growth rate and population By Ivan O. Kitov
  28. Les enjeux démocratiques des monnaies sociales By Jérôme Blanc
  29. Karl Polanyi et les monnaies modernes = un réexamen By Jérôme Blanc

  1. By: Filippo Altissimo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Frank Smets (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: This paper provides a summary of current knowledge on inflation persistence and price stickiness in the euro area, based on research findings that have been produced in the context of the Inflation Persistence Network. The main findings are - i) Under the current monetary policy regime, the estimated degree of inflation persistence in the euro area is moderate; ii) Retail prices in the euro area are more sticky than in the US; iii) There is significant sectoral heterogeneity in the degree of price stickiness; iv) Price decreases are not uncommon. The paper also investigates some of the policy implications of these findings. JEL Classification: E31, E42, E52.
    Keywords: Price setting, inflation persistence, monetary policy, EMU.
    Date: 2006–06
  2. By: Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: This paper analyses whether interest rate paths in the EMU member countries would have been different if the previous national central banks had not handed over monetary policy to the ECB. Using estimates of monetary policy reaction functions over the last 20 years before the formation of EMU, we derive long-run rules the relate interest rate setting to the expected one-year ahead inflation rate and the current output gap. These Taylor rules allow to derive long-run target rates which are employed in the simulation of counterfactual interest rate paths over the time period January 1999 to December 2004 and then compared to actual short-term interest rates in the euro area. It is found that for almost all EMU member countries euro area interest rates tend to be below the national target interest rates, even after explicitly accounting for a lower real interest rate in the EMU period, with Germany being the only exception.
    Keywords: Taylor rule, monetary policy, ECB, European Monetary Union
    JEL: E5
    Date: 2006
  3. By: Vitor Gaspar; Anil K. Kashyap
    Abstract: In this paper, we review Otmar Issing's career as the ECB's inaugural chief economist and we document many notable successes. We try to infer some general principles that contributed to these successes and draw some lessons. In doing so, we review the evidence using Woodford’s (2003) recent revival of the Wicksellian approach to monetary policy making. Suitably interpreted the baseline model can rationalize Issing’s three guiding principles for successful policymaking. This baseline model, however, fails to account for the important role that monetary and financial analysis played in the conduct of policy during Issing’s tenure. We propose an extension of the model to account for financial developments and show that this extended model substantially improves our understanding of ECB practice. We conclude by listing six open questions, relevant for the future of central banking in Europe that Issing may want to consider in case leisure allows.
    JEL: E31 E52 E58 E44
    Date: 2006–06
  4. By: Ángel León (Universidad de Alicante); Francis Benito (Universidad de Alicante); Juan Nave (Universidad de Castilla-La Mancha)
    Abstract: This paper describes the evolution of the daily Euro overnight interestrate (EONIA) by using several models containing the jump component such asa single regime ARCH-Poisson-Gaussian process, with either a piecewisefunction or an autoregressive conditional specification (ARJI) for the jumpintensity, and a two regime-switching process with jumps and time varyingtransition probabilities. To model the jump intensity, we include the followingeffects which are significant for the occurrence of jumps such as: (1) the end ofmaintenance period effect because of reserve requirements, (2) the end ofmonth effect, also known as the calendar day effect, caused mainly by theaccounting adjustments and finally, (3) the meeting effect caused by thefortnightly meetings of the Governing Council of the European Central Bank(ECB). These effects lead to a better performance and several of them are alsoincluded for the behavior of the transition probabilities. Since the target of theECB is keeping the EONIA rate close to the official rate, we have modeled theconditional mean of the overnight rate series as a reversion process to theofficial rate distinguishing two alternative speeds of reversion, in concrete, adifferent speed if EONIA is higher or lower than the official rate. We also studythe jumps of the EONIA rate around the ECB’s meetings by using the ex-postprobabilities of the ARJI model. Finally, we develop an out-of-sampleforecasting analysis to measure the performance of the different candidatemodels.
    Keywords: ARCH-Poisson-Gaussian; Regime switching; mean reversion; Autoregressive conditional jump intensity; Maintenance period; Calendar day effect; ECB’s meeting.
    JEL: C13 C22 E43 E52
    Date: 2006–06
  5. By: Rafael Domenech (Institute of International Economics, University of Valencia); Javier Andres; Javier Ferri
    Abstract: The successful matching model developed by Mortensen and Pissarides seems to find its hardest task in explaining the cyclical movements of some key labor market variables such as the vacancy rate and the vacancy-unemployment ratio. Several authors have discussed mechanisms compatible with the matching technology that are able to deliver the kind of correlations observed in the data. In this paper we explore four such additional mechanisms embedded in a full blown SDGE model. We find that price rigidity greatly improves the model's empirical performance making it capable of reproducing second moments of the data. Other components such as intertemporal substitution, endogenous match destruction, capital accumulation and distortionary taxes also play a relevant role.
    Keywords: unemployment, vacancies, business cycle, price rigidities
    JEL: E24 E32 J64
    Date: 2006–06
  6. By: Howard E. Doran; D.S. Prasada Rao; Alicia N. Rambaldi (CEPA - School of Economics, The University of Queensland)
    Abstract: The importance of availability of comparable real income aggregates and their components to applied economic research is highlighted by the popularity of the Penn World Tables. Any methodology designed to achieve such a task requires the combination of data from several sources. The first is purchasing power parities (PPP) data available from the International Comparisons Project roughly every five years since the 1970s. The second is national level data on a range of variables that explain the behaviour of the ratio of PPP to market exchange rates. The final source of data is the national accounts publications of different countries which include estimates of gross domestic product and various price deflators. In this paper we present a method to construct a consistent panel of comparable real incomes by specifying the problem in state-space form. We present our completed work as well as briefly indicate our work in progress.
    Date: 2005–04
  7. By: John Bluedorn (Nuffield College and Department of Economics, University of Oxford); Christopher Bowdler (Nuffield College and Department of Economics, University of Oxford)
    Abstract: We characterize the channels by which a failure to distinguish intended/unintended and anticipated/unanticipated monetary policy may lead to attenuation bias in monetary policy's open economy effects. Using a U.S. monetary policy measure which isolates the intended and unanticipated component of federal funds rate changes, we quantify the magnitude of the attenuation bias for the exchange rate and foreign variables, finding it to be substantial. The exchange rate appreciation following a monetary contraction is up to 4 times larger than a recursively-identified VAR estimate. There is stronger evidence of foreign interest rate pass-through. The expenditure-reducing effects of a U.S. monetary policy contraction dominate any expenditure-switching effects, leading to a positive conditional correlation of international outputs and prices.
    JEL: E52 F31 F41
    Date: 2006–06–01
  8. By: Darmoul Mokhtar (Centre d'Economie de la Sorbonne)
    Abstract: In this paper, we investigate the impact of monetary policy signals stemming from the ECB Council and the FOMC on the intradaily Euro-dollar volatility, using high-frequency data (five minutes frequency). For that, we estimate an AR(1)-GARCH(1,1) model, which integrates a polynomials structure depending on signal variables, starting from the deseasonalized exchange rate returns series. This structure allows us to test the signals persistence one hour after their occurence and to reveal a dissymmetry between the effect of the ECB and Federal Reserve signals on the exchange rate volatility.
    Keywords: Exchange rates, official interventions, monetary policy, GARCH models.
    JEL: C22 E52 F31 G15
    Date: 2006–06
  9. By: Yuriy Gorodnichenko; Matthew D. Shapiro
    Abstract: The Fed kept interest rates low and essentially unchanged during the late 1990s despite a booming economy and record-low unemployment. These interest rates were accommodative by historical standards. Nonetheless, inflation remained low. How did the Fed succeed in sustaining rapid economic growth without fueling inflation and inflationary expectations? In retrospect, it is evident that the productive capacity of the economy increased. Yet as events unfolded, there was uncertainty about the expansion of the capacity of the economy and therefore about the sustainability of the Fed’s policy. This paper provides an explanation for the success of the Fed in accommodating growth with stable inflation in the late 1990s. It shows that if the central bank is committed to reverse policy errors it makes because of unwarranted optimism, inflation can remain in check even if the central bank keeps interest rates low because of this optimism. In particular, a price level target—which is a simple way to model a commitment to offset errors—can serve to anchor inflation even if the public does not share the central bank’s optimism about shifts in potential output. The paper shows that price level targeting is superior to inflation targeting in a wide range of situations. The paper also provides econometric evidence that, in contrast to earlier periods, the Fed has recently put substantial weight on the price level in setting interest rates. Moreover, it shows that CPI announcement surprises lead to reversion in the price level. Finally, it provides textual evidence that Alan Greenspan puts relatively more weight on the price level than inflation.
    JEL: E52 E58
    Date: 2006–06
  10. By: Marie Brière (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: This paper compares the communication strategies of the Fed and the ECB and their impact on financial markets. Interest rates options were used to calculate daily probability distributions of market expectations and to examine how they are modified by central banks’ announcements. We found that Greenspan’s speeches have a stronger influence on rate levels and market uncertainty than Duisenberg’s. Moreover, market expectations most significant reaction is to economic indicators central banks mention as being important. Monetary decisions are regularly anticipated thanks to speeches and economic releases and the dominant speech themes were shown to be “monetary policy” and “domestic economy”.
    Keywords: central bank communication, risk neutral density, futures option pricing, event studies.
    JEL: E43 E58 G13 G14
    Date: 2006–05
  11. By: Habib Ahmed (Islamic Development Bank); C. Paul Hallwood (University of Connecticut); Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas)
    Abstract: We develop an open economy macroeconomic model with real capital accumulation and microeconomic foundations. We show that expansionary monetary policy causes exchange rate overshooting, not once, but potentially twice; the secondary repercussion comes through the reaction of firms to changed asset prices and the firmsâ decisions to invest in real capital. The model sheds further light on the volatility of real and nominal exchange rates, and it suggests that changes in corporate sector profitability may affect exchange rates through international portfolio diversification in corporate securities.
    Keywords: physical capital, open economy macroeconomic, monetary policy, exchange rate
    JEL: F31 F32
    Date: 2006–06
  12. By: Rudiger Ahrend; Pietro Catte; Robert Price
    Abstract: Long-term bond yields have been low in recent years both in nominal and real terms, and . especially in the United States - they have reacted differently to shifts in monetary and fiscal stances relative to previous cycles. This article examines various possible explanations for this behaviour, such as the effects of changes in monetary policy frameworks on inflation and interest rate expectations; developments in ex ante saving-investment balances, and shifts in investors. portfolio preferences (including official reserve accumulation, .petro-dollar. recycling and pension fund demand for longer maturities). The paper finds that it is unlikely that any individual explanation can account for the level and profile of bond yields in recent years, but that an important element has been a compression in term premia, together with shifts in expected short rates. Even though bond yields have started to rise in the early part of 2006, they are unlikely to go back to the levels that prevailed in the 1980s or the early 1990s, as several of the factors that drove them lower are set to persist. <P>Éléments à l’origine de la faiblesse des taux d’intérêt à long terme Au cours des années récentes les rendements des obligations à long terme ont été faibles tant en termes nominaux qu’effectifs. Par rapport aux cycles économiques antérieurs, ils ont réagi différemment aux changements de politique monétaire et budgétaire, notamment aux États-Unis. Cet article examine plusieurs explications potentielles de ces comportements comme les effets d’un changement de cadre de la politique monétaire sur l’inflation et les anticipations de taux d’intérêt; l’évolution des soldes ex ante d’épargne et d’investissement et les changements de préférence dans les placements des investisseurs (y compris l’accumulation des réserves officielles, le recyclage des « pétrodollars » et la demande des fonds de pension pour des obligations à maturité longue). L’article conclut qu’il est improbable qu’une seule explication puisse rendre compte du niveau et du profil des rendements obligataires au cours des dernières années. Toutefois, un élément clef a été la réduction de la prime de risque, accompagnée par des changements dans les anticipations de taux d’intérêt à court terme. Néanmoins, bien que les rendements des obligations aient commencé à remonter au début de l’année 2006, il est peu vraisemblable qu’ils atteignent les niveaux enregistrés dans les années 1980 et au début des années 1990, dans la mesure où plusieurs des facteurs qui ont entraîné leur déclin sont amenés à perdurer.
    Keywords: financial markets, marchés financiers, capital flows, flux de capitaux, credibility, monetary policy, crédibilité, politique monétaire, risk premia, current account
    JEL: E43 F2 G11 G15
    Date: 2006–06–13
  13. By: Boel, Paola; Camera, Gabriele
    Abstract: We construct a monetary economy with heterogeneity in discounting and consumption risk. Agents can insure against this risk with both money and nominal government bonds, but all trades must be monetized. We demonstrate that a deflationary policy a la Friedman cannot sustain the efficient allocation. The reason is that no-arbitrage imposes a stringent bound on the return money can pay. The efficient allocation can be sustained when bonds have positive yields and – under certain conditions – only if they are illiquid. Illiquidity – meaning bonds cannot be transformed into consumption as efficiently as cash – is necessary to eliminate arbitrage opportunities.
    Keywords: Money ; Heterogeneity ; Friedman Rule ; Illiquid Assets
    JEL: E4 E5
    Date: 2004–11
  14. By: Rajesh Singh; Joydeep Bhattacharya
    Keywords: banking crises, fixed versus flexible regimes
    JEL: F41
    Date: 2005
  15. By: Eiji Ogawa; Kentaro Kawasaki
    Abstract: East Asian countries, for example "ASEAN plus three countries" (China, Korea, and Japan), have been well cognizant of importance of the regional financial cooperation since the Asian currency crisis in 1997. They have established the Chiang Mai Initiative (CMI) to manage currency crises. However, the CMI is not designed for "crisis prevention" because it includes no more than soft surveillance process as well as a network of currency swap arrangements. The surveillance process should be conducted over intra-regional exchange rates and exchange rate policies of the regional countries in order to stabilize intra-regional exchange rates in a situation of a strong economic relationship among the regional countries. On one hand, the regional exchange rate stability is related with an optimum currency area. Based on a Generalized PPP model, which detects a cointegration relationship among real effective exchanges rates, we investigate whether the region composed of "ASEAN plus three countries" is an optimum currency area. In the investigation, our interest is focused on an issue whether the Japanese yen could be regarded as an "insider" currency as well as other East Asian currencies. Or, is the Japanese yen still an "outsider" which is used as a target currency of foreign exchange rate policy for other East Asian countries. We employ a Dynamic OLS to estimate the long-term relationship among the East Asian currencies in a currency basket. Our empirical results indicate that the Japanese yen works as an exogenous variable in the cointegration system during a pre-crisis period while it works as an endogenous one during a post-crisis period. It implies that the Japanese yen could be regarded as an insider currency as well as other East Asian currencies after the crisis although it is regarded as an outsider currency as well as the US dollar and the euro before the Asian crisis.
    Date: 2006–06
  16. By: Joseph P Joyce (Department of Economics, Wellesley College); Ilan Noy (Department of Economics, University of Hawaii)
    Abstract: Using data from a panel of developing economies from the 1982-98 period, the claim that the International Monetary Fund precipitated financial crises during the 1990s by pressuring countries to liberalize their capital accounts prematurely is evaluated. Examining whether the changes in the regime governing capital flows took place during participation in IMF programs, evidence finds that IMF program participation is correlated with capital account liberalization episodes during the 1990s. Alternative indicators of capital account openness were used to test the robustness of the results by comparing the economic and financial characteristics of countries that decontrolled during IMF programs with those of countries who did so independently to determine whether decontrol was premature.
    JEL: F3
  17. By: Reginaldo P. Nogueira Jnr
    Abstract: The paper presents evidence on the exchange rate pass-through for a set of emerging and developed economies before and after the adoption of Inflation Targeting. We use an ARDL model for a sample of developed and emerging market economies to estimate the short-run and the long-run effects of depreciations on prices. The results support the view of the previous literature that the pass-through is higher for emerging than for developed economies, and that it has decreased after the adoption of Inflation Targeting. This reduction, however, does not mean that the pass-through is no longer existent for developed and emerging market economies, especially when it comes to the long-run. This finding highlights the importance of using dynamic models when dealing with the inflation-depreciation relationship. The results also show the important role of foreign producer costs for the imports pricing behaviour in developed economies, and of inflation stability in emerging markets.
    Keywords: Inflation Targeting, Exchange Rate Pass-through
    JEL: E31 E52 F31 F41
    Date: 2006–01
  18. By: Gregor Smith (Queen's University)
    Keywords: Phillips curve, Japan
    JEL: E31 E24
    Date: 2006–05
  19. By: Michael D. Bordo; Christopher M. Meissner; Marc D. Weidenmier
    Abstract: It is generally very difficult to measure the effects of a currency depreciation on a country’s balance sheet and financing costs given the endogenous properties of the exchange rate. History provides at least one natural experiment to test whether an exogenous exchange rate depreciation can be contractionary (via an increased real debt burden) or expansionary (via an improved current account). France’s decision to suspend the free coinage of silver in 1876 played a paramount role in causing a large exogenous depreciation of the nominal exchange rates of all silver standard countries versus gold-backed currencies such as the British pound—the currency in which much of their debt was payable. Our identifying assumption is that France’s decision to end bimetallism was exogenous from the viewpoint of countries on the silver standard. To deal with heterogeneity we implement a difference in differences estimator. Sovereign yield spreads for countries on the silver standard increased in proportion to the potential currency mismatch. Yield spreads for silver countries increased ten to fifteen percent in the wake of the depreciation. Basic growth models suggest that the accompanying reduction in investment could have decreased output per capita by between one and four percent relative to the pre-shock trajectory. This also illustrates that a substantial proportion of the decrease in spreads gold standard countries identified in the “Good Housekeeping” literature could be attributable to the increase in exchange rate stability. Finally, if emerging markets are going to embrace international capital flows, the most export oriented countries will manage to mitigate the negative effects of a currency mismatch.
    JEL: N1 N2 F3
    Date: 2006–06
  20. By: Vincent Bouvatier (Centre d'Economie de la Sorbonne); Laetitia Lepetit (LAPE, Université de Limoges)
    Abstract: A panel of 186 European banks is used for the period 1992-2004 to determine if banking behaviors induced by the capital adequacy constraint and the provisioning system, amplify credit fluctuations. Our finding is consistent with the bank capital channel hypothesis, which means that poorly capitalized banks are constrained to expand credit. We also find that loan loss provisions (LLP) made in order to cover identified credit losses (non discretionary LLP) amplify credit fluctuations. Indeed, non discretionary LLP evolve cyclically. This leads to a misevaluation of expected credit risk which affect banks' incentives to grant new loans since lending costs are misstated. By contrast, LLP use for management objectives (discretionary LLP) do not affect credit fluctuations. The findings of our research are consistent with the call for the implementation of dynamic provisioning in Europe.
    Keywords: Bank lending, loan loss provisions, capital requirement.
    JEL: G21
    Date: 2006–05
  21. By: J. David Brown (Heriot-Watt University, CEU Labor Project, IZA); John S. Earle (W.E. Upjohn Institute for Employment Research and CEU Labor Project); Vladimir Gimpelson (Author-Workplace-Name:); Rostislav Kapeliushnikov (CLMS, Higher School of Economics); Hartmut Lehmann (University of Bologna; Heriot-Watt University, Labor Group EROC,Kiev School of Economics, IZA); Almos Telegdy (CEU Labor Project, Institute of Economics of the Hungarian Academy of Sciences); Irina Vantu (CEU Labor Project); Ruxandra Visan (CEU Labor Project); Alexandru Voicu (City University of New York, Staten Island College, IZA)
    Abstract: This paper looks behind the standard, publicly available labor force statistics relied upon in most studies of transition economy labor markets. We analyze microdata on detailed labor force survey responses in Russia, Romania, and Estonia to measure nonstandard, boundary forms and alternative definitions of employment and unemployment. Our calculations show that measured rates are quite sensitive to definition, particularly in the treatment of household production (subsistence agriculture), unpaid family helpers, and discouraged workers, while the categories of part-time work and other forms of marginal attachment are still relatively unimportant. We find that tweaking the official definitions in apparently minor ways can produce alternative employment rates that are sharply higher in Russia but much lower in Romania and slightly lower in Estonia, and alternative unemployment rates that are sharply higher in Romania and moderately higher in Estonia and Russia.
    Keywords: nonstandard, work, data, unemployment, Estonia, Russia, Romania
    JEL: J21
    Date: 2006–06
  22. By: Alessandro Beber; Michael W. Brandt
    Abstract: We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets. We measure macroeconomic uncertainty using prices of economic derivatives and relate this measure to changes in implied volatilities of stock and bond options when the economic data is released. We also examine the relationship between our measure of macroeconomic uncertainty and trading activity in stock and bond option markets before and after the announcements. Higher macroeconomic uncertainty is associated with greater reduction in implied volatilities. Higher macroeconomic uncertainty is also associated with increased volume in option markets after the release, consistent with market participants waiting to trade until economic uncertainty is resolved, and with decreased open interest in option markets after the release, consistent with market participants using financial options to hedge macroeconomic uncertainty. The empirical relationships are strongest for long-term bonds and weakest for non-cyclical stocks.
    JEL: G1
    Date: 2006–06
  23. By: Gregory E. Givens; Michael K. Salemi
    Abstract: This paper presents a Generalized Method of Moments algorithm for estimating the structural parameters of a macroeconomic model subject to the restriction that the coefficients of the monetary policy rule minimize the central bank's expected loss function. The algorithm combines least-squares normal equations with moment restrictions derived from the first-order necessary conditions of the auxiliary optimization. We assess the performance of the algorithm with Monte Carlo simulations using three increasingly complex models. We find that imposing the optimizing restrictions when they are true improves estimation accuracy and that imposing those restrictions when they are false biases estimates of some of the structural parameters but not of the policy rule coefficients.
    Keywords: GMM, optimal monetary policy, simple rules, policy objectives
    JEL: C32 C61 E31 E32 E52 E61
    Date: 2006–06
  24. By: Aliprantis, C.D.; Camera, Gabriele; Puzzello, D.
    Abstract: We study an infinite-horizon economy with two basic frictions that are typical in monetary models. First, agents’ trading paths cross at most once due to pairwise trade and other meeting obstacles. Second, actions must be compatible with individual incentives due to commitment and enforcement limitations. We find that, with patient agents, relaxing the first friction by introducing centralized markets, opens the door to an informal enforcement scheme sustaining a non-monetary efficient allocation. Hence, we present a matching environment in which agents repeatedly access large markets and yet the basic frictions are retained. This allows the construction of models based on competitive markets in which money plays an essential role.
    Keywords: Money ; Infinite games ; Matching models ; Social norms
    JEL: C72 C73 D80 E00
    Date: 2005–10
  25. By: Emilia Penkova
    Abstract: The paper tests for potential pricing-to-market for a wide range of export industries in selected transition economies, namely Poland, Hungary and Bulgaria, at the four-digit level over the period 1990-1998. Panel estimation is undertaken and a fixed-effects linear model is estimated. The empirical evidence reported here offers new evidence for transition economies that have not been investigated before. Given the industries sampled, more price discrimination across destination is observed in Bulgaria than in Poland and Hungary. There is no evidence showing pricing-to-market in relation to common industries across source countries.
  26. By: Emilia Penkova
    Abstract: The paper initiates a new area of research: both concepts of hysteresis and pricing-to-market are simultaneously investigated in relation to German exports into Belgium, France, Italy, UK, Spain and Sweden over the period 1975 to 1994 at 4-digit ISIC level. There is abundant empirical evidence that German exports price-to-market. Part of this observed limited exchange rate pass-through, however, might be due to hysteresis as well. A dynamic panel estimation is undertaken, a new concept "pricing-to-market due to hysteresis in quantities" is introduced, and a method for capturing it is proposed. A test for measuring hysteresis in prices is also suggested. There is evidence that hysteresis and pricing-to-market deserve a better empirical modelling.
  27. By: Ivan O. Kitov (Russian Academy of Sciences)
    Abstract: Real GDP growth rate in developed countries is found to be a sum of two terms. The first term is the reciprocal value of the duration of the period of mean income growth with work experience, Tcr. The current value of Tcr in the USA is 40 years. The second term is inherently related to population and defined by the relative change in the number of people with a specific age (9 years in the USA), (1/2)*dN9(t) /N9(t), where N9(t) is the number of 9-year-olds at time t. The Tcr grows as the square root of real GDP per capita. Hence, evolution of real GDP is defined by only one parameter - the number of people of the specific age. Predictions for the USA, the UK, and France are presented and discussed. A similar relationship is derived for real GDP per capita. Annual increment of GDP per capita is also a combination of economic trend term and the same specific age population term. The economic trend term during last 55 years is equal to $400 (2002 US dollars) divided by the attained level of real GDP per capita. Thus, the economic trend term has an asymptotic value of zero. Inversion of the measured GDP values is used to recover the corresponding change of the specific age population between 1955 and 2003. The population recovery method based on GDP potentially is of a higher accuracy than routine censuses.
    Keywords: economic development, GDP, population, modeling, the USA
    JEL: J1 O11 O51 E37
    Date: 2006
  28. By: Jérôme Blanc (LEFI - Laboratoire d'économie de la firme et des institutions - [Université Lumière - Lyon II])
    Abstract: Les monnaies sociales interpellent la démocratie. Leur apport supposé à la démocratie peut s'analyser à deux niveaux : d'une part, comme dispositifs relevant de l'économie solidaire, les monnaies sociales procèdent d'un mode de gouvernance interne qui est en principe démocratique ; d'autre part, comme dispositifs établissant localement une monnaie spécifique gérée par les personnes elles-mêmes, elles (ré-)introduisent la monnaie dans la sphère de ce qui relève de la démocratie. Ce sont ces deux points que ce texte va brièvement évoquer, en soulignant à la fois les enjeux démocratiques des monnaies sociales et les risques d'échec dont elles sont porteuses.
    Keywords: Monnaies sociales;démocratie;monnaie;citoyenneté
    Date: 2006–06–06
  29. By: Jérôme Blanc (LEFI - Laboratoire d'économie de la firme et des institutions - [Université Lumière - Lyon II])
    Abstract: Karl Polanyi a établi une célèbre distinction entre "all purpose money", caractéristiques des sociétés modernes, et "special purpose money", caractéristiques des sociétés anciennes. C'est la conception polanyienne des monnaies modernes qui est critiquée dans ce texte : non seulement elle conduit à considérer que les sociétés modernes ne connaissent pas de "special purpose money", mais en plus elle ne permet pas de renouveler la conception courante de la monnaie (sous-entendu moderne) qui en fait un moyen de paiement universel.
    Keywords: Monnaie moderne. Pratiques monétaires. Polanyi. Monnaies parallèles. Fongibilité. Cloisonnements.
    Date: 2006–06–09

This nep-cba issue is ©2006 by Alexander Mihailov. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.