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on Central Banking |
| By: | Christopher W. Crowe |
| Abstract: | A motivation for central bank independence (CBI) is that policy delegation helps politicians manage diverse coalitions. This paper develops a model of coalition formation that predicts when delegation will occur. An analysis of policy preferences survey data and CBI indicators supports the predictions. Case studies, drawn from several countries' recent past and the nineteenth-century United States, provide further support. Finally, the model explains why the expected negative relationship between CBI and inflation is not empirically robust: endogenous selection biases the estimated effect towards zero. The data confirm this. |
| Keywords: | Central bank independence , inflation , coalition formation , treatment effects , Central banks , Inflation , Political economy , |
| Date: | 2006–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/256&r=cba |
| By: | Jerome Vandenbussche |
| Abstract: | The move from individual decision making to committee decision making is widely seen as a major evolution in contemporary central banking. This paper reviews the relevant economics and social psychology literatures with a view to providing some insights into the question of optimal monetary policy committee design. While the preference aggregation literature points to the effect of committee structure on the extent of the time inconsistency problem and its associated costs, the belief aggregation literature analyzes how different committee structures affect the efficiency of information pooling, the process of social influence, and collective accuracy. In conclusion, we highlight the main tradeoffs that the analysis has brought to light and point to directions for future research. |
| Keywords: | Monetary policy , collective decision making , committees , |
| Date: | 2006–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/277&r=cba |
| By: | Vincent Bodart (Université catholique de Louvain); Gregory De Walque (National Bank of Belgium); Olivier Pierrard (Central Bank of Luxembourg and Université catholique de Louvain); Henri R. Sneessens (Université catholique de Louvain, Université catholique de Lille and IZA Bonn); Raf Wouters (National Bank of Belgium) |
| Abstract: | In this paper, we propose a search and matching model with nominal stickiness à la Calvo in the wage bargaining. We analyze the properties of the model, first, in the context of a typical real business cycle model driven by stochastic productivity shocks and second, in a fully specified monetary DSGE model with various real and nominal rigidities and multiple shocks. The model generates realistic statistics for the important labor market variables. |
| Keywords: | DSGE, search and matching, nominal wage rigidity, monetary policy |
| JEL: | E31 E32 E52 J64 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2528&r=cba |
| By: | Vincent Bodart (Université catholique de Louvain); Olivier Pierrard (Central Bank of Luxembourg and Université catholique de Louvain); Henri R. Sneessens (Université catholique de Louvain, Université catholique de Lille and IZA Bonn) |
| Abstract: | RBC models with search unemployment and wage renegotiation generate too much wage volatility and too stable unemployment rate. Shimer (2004) shows that it is possible to reproduce a volatility of unemployment similar to that observed in actual economies by imposing full real wage rigidity. We use a similar model but with Calvo wage contracts and we obtain a microfounded equation of real wage rigidities. The models with full wage flexibility or full wage rigidity are obtained as particular cases. We show that a contract length of about six quarters fits best the observed cyclical properties of wages and unemployment. |
| Keywords: | search unemployment, Calvo wage, cyclical properties |
| JEL: | E24 E32 J30 J41 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2521&r=cba |
| By: | John Cady; Jesus Gonzalez-Garcia |
| Abstract: | The effects of the adoption of the IMF's International Reserves and Foreign Currency Liquidity Data Template on nominal exchange rate volatility are investigated for 48 countries. Estimation of panel data models indicates that nominal exchange rate volatility decreases following dissemination of reserves template data while the effects of indebtedness and reserve adequacy on volatility exhibit statistically significant changes. |
| Keywords: | Exchange rate volatility , foreign exchange reserves , transparency , SDDS , Exchange rate variability , Foreign exchange reserves , Liquidity , Transparency , Special Data Dissemination Standard , Economic models , |
| Date: | 2006–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/274&r=cba |
| By: | Abbas Mirakhor; Iqbal Mehdi Zaidi |
| Abstract: | This paper attempts to set out the principal issues that need to be resolved in formulating a proposal for quotas and voice reform in the IMF that could command broad support. Following John Rawls, we argue that "justice is the first virtue of social institutions," and we use his theory of justice to provide a method for understanding what should be the case, in the context of voice and voting shares, before international institutions, such as the IMF, are to be justifiable to their members. The implementation of this process suggests, among other things, that a major revision of the quota formulas is long overdue, and leaving this unaddressed raises serious questions regarding the IMF's governance which could develop into a core mission risk and jeopardize the relevance of the institution. |
| Keywords: | Governance , International Monetary Arrangements and Institutions , International Monetary Fund , Quota increases , Quota distribution , Voting power , Quota calculations , Governance , Transparency , |
| Date: | 2006–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/273&r=cba |
| By: | Celine Rochon; Andrew Feltenstein |
| Abstract: | In this paper, we study the impact of labor market restructuring and foreign direct investment on the banking sector, using a dynamic general equilibrium model with a financial sector. Numerical simulations are performed using stylized Chinese data, and banks failures are generated through increases in the growth rate of the labor force, a revaluation of the exchange rate or an increase in debt issue to finance the government deficit, as compared to a benchmark scenario in which banks remain solvent. Thus bank failures can result from what might seem to be either beneficial economic trends, or correct monetary and fiscal policies. We introduce fiscal policies that modify relative factor prices by lowering the capital tax rate and increasing the tax rate on labor. Such policies can prevent banking failures by raising the return to capital. It is shown that such fiscal policies are, in the short run, welfare reducing. |
| Keywords: | Banking failures , fiscal policies , Banking , China , Fiscal policy , Tax rates , Labor markets , Foreign investment , Economic models , |
| Date: | 2006–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/263&r=cba |
| By: | Philippe D Karam; Doug Hostland |
| Abstract: | This paper documents the specification of a model that was constructed to assess debt sustainability in emerging market economies. Key features of the model include external and fiscal sectors, which allow assessment of external and public debt in a unified framework; public and external debt, which both have an explicit maturity structure along with a distinction between denomination in domestic versus foreign currency to facilitate debt management analysis; monetary and fiscal policy, which are endogenous and specified using explicit forward-looking policy rules; an endogenous risk premium on public and external debt; and a mechanism for invoking a sudden stop in private capital flows. The paper provides an overview of the basic structure of the model, outlines the methodology used to calibrate the parameters, and illustrates the key properties of the model with reference to dynamic responses of selected variables to shocks of interest. |
| Keywords: | Debt sustainability , dynamic analysis , Monte Carlo simulations , Debt sustainability analysis , Emerging markets , Economic models , |
| Date: | 2006–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/268&r=cba |
| By: | Keiko Honjo; Ben Hunt |
| Abstract: | This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy frontiers that trace out the locus of the lowest combinations of inflation and output variability that are achievable under a range of alternative monetary policy rules. These frontiers illustrate that inflation stabilization is more challenging in Iceland than in other industrial countries primarily because of the relative magnitudes of the economic shocks. |
| Keywords: | Efficient policy frontier , monetary policy rules , inflation-output variability tradeoff , policy coordination , Inflation , Iceland , Monetary policy , Economic stabilization , Economic models , |
| Date: | 2006–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/262&r=cba |
| By: | Daniel Kanda |
| Abstract: | This paper develops and estimates a model of the trade balance of Bosnia and Herzegovina. Credit flows and the fiscal stance are found to play a significant role in determining the trade balance. On this basis the paper discusses the trade-offs between monetary and fiscal policy settings needed to achieve a clear downward path for the large current account deficit of Bosnia and Herzegovina. |
| Keywords: | Fiscal , monetary , credit , trade balance , |
| Date: | 2006–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/276&r=cba |
| By: | Martin Petri; Tahsin Saadi-Sedik |
| Abstract: | This paper estimates the effect of grants and workers' remittances on Jordan's long-term equilibrium real exchange rate. We estimate an equilibrium path for the Jordanian real exchange rate using the Johansen cointegration methodology over the period 1964 to 2005. Controlling for other fundamentals, we find that both grants and workers' remittances appreciate the equilibrium real exchange rate in a statistically and economically significant way. We also find that assessing deviations of the actual real exchange rate from the estimated equilibrium real exchange rate is nontrivial because different smoothing methodologies and the nonsmoothed estimates give very different results. |
| Keywords: | Jordan , grants , remittances , equilibrium real exchange rate , smoothing techniques , Capital inflows , Jordan , Workers remittances , Exchange rates , Economic models , |
| Date: | 2006–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/257&r=cba |