nep-cba New Economics Papers
on Central Banking
Issue of 2006‒08‒19
sixteen papers chosen by
Alexander Mihailov
University of Essex

  1. Evaluating Inflation Targeting Using a Macroeconometric Model By Ray C. Fair
  2. The Theory of Money and Financial Institutions: A Summary of a Game Theoretic Approach By Martin Shubik
  3. Are Internet Prices sticky? By Patrick Lünnemann; Ladislav Wintr
  4. Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility By Eric Hillebrand; Gunther Schnabl; Yasemin Ulu
  5. EMU Enlargement, Policy Uncertainty and Economic Reforms By Carsten Hefeker
  6. Credit risk mitigation in central bank operations and its effects on financial markets - the case of the Eurosystem By Ulrich Bindseil; Francesco Papadia
  7. The Timing of Monetary Policy Shocks By Giovanni Olivei; Silvana Tenreyro
  8. The Effects of Rounding on the Consumer Price Index By Elliot D. Williams
  9. Heterogeneity in lending and sectoral growth : evidence from German bank-level data By Buchm, Claudia M.; Schertler, Andrea; von Westernhagen, Natalja
  10. Central Bank Independence and inflation: the case of Greece By PANAGIOTIDIS, Theodore; TRIAMPELLA, Afroditi
  11. O papel da moeda nas teorias do desenvolvimento desigual: uma abordagem pós-keynesiana By Ana Tereza Lanna Figueiredo
  12. The Role of the IMF in Well-Performing Low-Income Countries By Steve Radelet
  13. Social Cohesion, Institutions, and Growth By William Easterly; Jozef Ritzan; Michael Woolcock
  14. Una evaluación de los pronósticos de inflación en Colombia bajo el esquema de inflación objetivo By NUÑEZ AMORTEGUI, Héctor Mauricio
  15. Evidence of Bank Lending Channel for Argentina and Colombia By José Gómez González; Fernando Grosz
  16. Response of Venezuelan output to monetary policy, deficit spending, and currency depreciation: a VAR model By HSING, Yu

  1. By: Ray C. Fair
    Date: 2006–08–11
  2. By: Martin Shubik
    Date: 2006–08–11
  3. By: Patrick Lünnemann; Ladislav Wintr
    Abstract: This paper studies the behaviour of Internet prices. It compares price rigidities on the Internet and in traditional brick-and-mortar stores and provides a cross-country perspective. The data set covers a broad range of items typically sold over the Internet. It includes more than 5 million daily price quotes downloaded from price comparison web sites in France, Germany, Italy, the UK and the US. The following results emerge from our analysis. First, and contrary to the recent findings for common CPI data, Internet prices in the EU countries do not change less often than online prices in the US. Second, prices on the Internet are not necessarily more flexible than prices in traditional brick-and-mortar stores. Third, there is substantial heterogeneity in the frequency of price change across shop types and product categories. Fourth, the average price change on the Internet is relatively large, but smaller than the respective values reported for CPI data. Finally, panel logit estimates suggest that the likelihood of observing a price change is a function of both state- and time-dependent factors.
    Date: 2006–06
  4. By: Eric Hillebrand; Gunther Schnabl; Yasemin Ulu
    Abstract: We use realized volatility to study the influence of central bank interventions on the yen/dollar exchange rate. Realized volatility is a technical innovation that allows specifying a system of equations for returns, realized volatility, and interventions without endogeneity bias. We find that during the period 1995 through 1999, interventions of the Japanese monetary authorities did not have the desired effect with respect to the exchange rate level and we measure an increase in volatility associated with interventions. During the period 1999 through 2004, the estimations are consistent with successful interventions, both in depreciating the yen and in reducing exchange rate volatility.
    JEL: C32 E58 F31 F33 G15
    Date: 2006
  5. By: Carsten Hefeker
    Abstract: The paper analyzes the relation between monetary uncertainty and government incentives to implement economic reforms that reduce structural distortions and make economies more flexible. It is shown that uncertainty about the central bank’s reaction function leads to more reforms. I relate this result to the debate about central bank setup in a larger monetary union.
    Keywords: transparency of monetary policy, ECB voting structure, European Monetary Union, optimal representation, labor market regulation
    JEL: D72 E52 E58 F33
    Date: 2006
  6. By: Ulrich Bindseil (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Francesco Papadia (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: This paper reviews the role and effects of the collateral framework which central banks, and in particular the Eurosystem, use in conducting temporary monetary policy operations. First, the paper explains the design of such a framework from the perspective of risk mitigation, which is the purpose of collateralisation. The paper argues that, by means of appropriate risk mitigation measures, the residual risk on any potentially eligible asset can be equalised and brought down to the level consistent with the risk tolerance of the central bank. Once this result has been achieved, eligibility decisions should be based on an economic cost-benefit analysis. Second, the paper looks at the effects of the collateral framework on financial markets, and in particular on spreads between eligible and ineligible assets.
    Date: 2006–08
  7. By: Giovanni Olivei; Silvana Tenreyro
    Abstract: A vast empirical literature has documented delayed and persistent effects of monetary policy shockson output. We show that this finding results from the aggregation of output impulse responses thatdiffer sharply depending on the timing of the shock: when the monetary policy shock takes place inthe first two quarters of the year, the response of output is quick, sizable, and dies out at a relativelyfast pace. In contrast, output responds very little when the shock takes place in the third or fourthquarter. We propose a potential explanation for the differential responses based on uneven staggeringof wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show thata very modest amount of uneven staggering can generate differences in output responses similar tothose found in the data.
    Keywords: monetary policy, wage contracts
    JEL: E1 E52 E58 E32 E31
    Date: 2006–05
  8. By: Elliot D. Williams (U.S. Bureau of Labor Statistics)
    Abstract: The Bureau of Labor Statistics rounds the Consumer Price Index (CPI) to a single decimal place before releasing it, and the published CPI inflation series is calculated from those rounded index values. While rounding has only a relatively small effect on the level of the CPI series at present, it can have a significant effct on CPI inflation, the monthly percent changes in the CPI. This paper estimates the impact of rounding error on the published CPI inflation for both contemporaneous and historical data. Using an unrounded CPI series from January 1986 to July 2005 as a benchmark, I find that published CPI inflation differs from its full-precision counterpart approximately 25% of the time, and that reporting the CPI levels to three decimal places would reduce these discrepancies to under 0.5%. Further, the variance introduced by rounding error is large when compared to the sampling variation in CPI inflation. I find that the BLS could reduce total CPI inflation error variance by 42% by simply reporting more digits in the CPI index, resulting in a significantly more accurate reflection of monthly inflation. In order to extend these results to the CPI historical series, I derive the distribution of the rounding error component of inflation. From this analysis, it is possible to estimate the probability of large rounding errors for a given CPI level and rounding precision. Three regimes emerge. Before the 1970’s inflation, discrepancies due to rounding were both frequent and frequently large relative to the underlying inflation rate. During the inflationary period of the mid-1970’s to mid-1980’s, both the probability and relative magnitude of discrepancies decrease dramatically. Finally, the last twenty years are characterized by a slowly falling probability of any rounding-induced error, but a roughly constant probability of an error of a given size.
    Keywords: Consumer Price Index, Variance, Rounding, Inflation
    JEL: C80 E31
    Date: 2006–08
  9. By: Buchm, Claudia M.; Schertler, Andrea; von Westernhagen, Natalja
    Abstract: This paper studies the sectoral and geographical dimensions of the response of bank lending to sectoral growth. We use several bank-level datasets provided by the Deutsche Bundesbank for the 1996-2002 period. Our results show that bank heterogeneity affects how lending responds to domestic sectoral growth. We document that banks’ total lending to German firms reacts procyclically to domestic sectoral growth, while lending exceeding a threshold of €1.5 million to German and foreign firms does not. Moreover, we find that the response of lending depends on bank characteristics such as the banking groups, the banks’ asset size, and the degree of sectoral portfolio concentration. We find that total domestic lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks whose portfolios are heavily concentrated in specific sectors responds positively and, in relevant cases, more strongly to domestic sectoral growth.
    Keywords: bank lending, heterogeneity, sectoral growth
    JEL: F3 G21
    Date: 2006
  10. By: PANAGIOTIDIS, Theodore; TRIAMPELLA, Afroditi
    Abstract: This paper discusses the argument for Central Bank Independence (CBI) in the case of Greece. Using a time series approach and the last data available before Greece joined the EMU , the hypothesis that Central Bank Independence is important for controlling inflation is examined. Employing two indices, which serve as proxies for CBI and inflation was confirmed. The interactions between the variability of inflation and CBI were also investigated. Furthermore, evidence was found to suggst that the rate of turnover Granger causes inflation.
    Date: 2006–01–01
  11. By: Ana Tereza Lanna Figueiredo (Cedeplar-UFMG)
    Abstract: The theory of unequal development is set to inquire why some countries and/or regions grow more than others. In the attempt to solve this problem, scholars have not explicitly considered money as an important factor in such a scenario. However, in accordance with a post-Keynesian approach, money is not neutral. It does play a major role in decision-making by economic agents, and it is crucial to the determination of the accumulation dynamics of the economy. This paper purports to identify whether the theory of unequal development includes, however implicitly, the notion of money non-neutrality in the development process of a country or region. On the basis of this analysis, it may be concluded that, despite the fact that the theories of Rosenstein-Rodan (1943), Ragnar Nurske (1955), Albert Hirschman (1961), and Gunnar Myrdal (1960), presented herein, do not make explicit the role of money in this process, most of them imply it as they introduce uncertainty as a crucial factor in the determination of agents’ behavior in investment decisions.
    Keywords: money; unequal development; post-Keynesian economics
    JEL: E12 O20 O40
    Date: 2006–08
  12. By: Steve Radelet
    Abstract: The IMF began to play a prominent role in low-income countries in the late 1970s and 1980s when many countries faced overvalued exchange rates, growing budget deficits, high inflation, and low reserves. But times have changed, and many low-income countries no longer face these problems and do not need classic IMF programs. This paper explores options for the role of the IMF in well-performing low-income countries that no longer require IMF financing. It argues that in these countries the IMF should use more non-funded programs, and it should play a much less dominant role in overall conditionality. These countries should be able to focus more on achieving high-priority development goals that are outside the expertise of the IMF, such as in health, water, education, private sector development, and agriculture. While playing a less prominent role, the Fund should continue to be engaged in helping countries to maintain an appropriate macroeconomic framework. For some countries, a non-funded program like the new Policy Support Instrument (PSI) would be appropriate, while others could shift further to a program of surveillance and monitoring. In well-performing countries the Fund should provide public ratings on macroeconomic policy, ideally fully incorporated into the World Bank’s CPIA rating system.
    Keywords: IMF, exchange rate, budget deficit, inflation, reserves, conditionality
    JEL: F0 F4 O0 E0 E4 E43
    Date: 2006–02
  13. By: William Easterly; Jozef Ritzan; Michael Woolcock
    Abstract: We present evidence that measures of “social cohesion,” such as income inequality and ethnic fractionalization, endogenously determine institutional quality, which in turn casually determines growth.
    Keywords: Political institutions, social cohesion, poverty, economic policy
    JEL: H5 O1
    Date: 2006–08
  14. By: NUÑEZ AMORTEGUI, Héctor Mauricio
    Abstract: Based on the understanding of inflation forecasts as an intermediate policy objective, this paper evaluates forecasts of different inflation models in Colombia during the inflation targeting (IT) period. The evaluation is done using three different statistical methodologies. The results suggest that the best models, in terms of precision, are the Food’s Relative Price and the traditional P* models. Additionally, a multiplier analysis is performed over these models, in which the sensitivity of short and medium term forecasts to shocks in the exogenous variables is assessed
    Date: 2005–03–01
  15. By: José Gómez González; Fernando Grosz
    Abstract: In this paper we find empirical evidence of bank lending channel for Colombia and Argentina. As for Argentina, we do not find evidence that changes in the interbank interest rate affect the growth rate of total loans directly. However, it does indirectly through interactions: the interbank interest rate affects the loan supply through its interactions with capitalization and liquidity. As for Colombia, there is direct bank lending channel, which is reinforced through interactions with capitalization and liquidity. Also, using a panel data of more than 3300 firms, we provide additional support to the existence of a bank lending channel for Colombia.
    Keywords: Monetary Transmission; Bank Lending Channel; Argentina; Colombia
    JEL: E5 E52 G21
  16. By: HSING, Yu
    Abstract: This study applies the VAR model to find possible responses of real GDP to selected macroeconomic variables in Venezuela. Based on an annual sample during 1961 - 2001, the author finds that the real GDP responds positively to a shcock to real M2 , goverment déficit spending, exchange rate depreciation, and the lagged output and negatively to a shick to the inflation rate during some of the time periods. Except for the lagged output, government deficit spending and the inflation rate are the most influential variable in the first year, and real M2 and the real exchange rate are more influential and have longer - term after the first year.
    Date: 2004–10–01

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.
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