nep-cba New Economics Papers
on Central Banking
Issue of 2007‒02‒03
twelve papers chosen by
Alexander Mihailov
University of Reading

  1. When Is a Central Bank Governor Fired? Evidence Based on a New Data Set By Axel Dreher; Jakob de Haan; Jan-Egbert Sturm
  2. Representations and Sunspot Stability By George W. Evans; Bruce McGough
  3. The UK great stability: a view from the term structure of interest rates By Bianchi, Francesco; Mumtaz, Haroon; Surico, Paolo
  4. Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement By Laura Veldkamp; Justin Wolfers
  6. Stability and Cycles in a Cobweb Model with Heterogeneous Expectations By Laurence Lasselle; Serge Svizzero; Clem Tisdell
  7. Understanding the Old and New Bretton Woods By Paul Wachtel
  8. Savings and Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle? By Caroline Schmidt
  9. A golden rule for Russia? How a rule-based fiscal policy can allow a smooth adjustment to the new terms of trade By Christian Gianella
  10. Trade, Exchange Rates, and Macroeconomic Dynamics in East Asia: Why the Electronics Cycle Matters By Kumakura, Masanaga
  11. Representation in Econometrics: A Historical Perspective By Christopher L. Gilbert; Duo Qin
  12. Monetary and Exchange Rate Policy in Malaysia before the Asian Crisis By Umezaki, So

  1. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Jakob de Haan (University of Groningen, The Netherlands and CESifo, Munich, Germany); Jan-Egbert Sturm (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: This paper uses a new data set on the term in office of central bank governors in 137 countries covering the period 1970-2004 to estimate a model for the chance that a central bank governor is replaced. We formulate a number of hypotheses based on the literature on the determinants of central bank independence that are tested using conditional logit models and the Extreme Bounds Analysis. We conclude that, apart from the share of the current term in office elapsed, high levels of political and regime instability, the occurrence of elections, and high inflation increase the probability of a turnover.
    Keywords: central bank governors, central bank independence
    JEL: E5
    Date: 2006–07
  2. By: George W. Evans (University of Oregon Economics Department); Bruce McGough (Oregon State University)
    Abstract: By endowing his agents with simple forecasting models, or representations, Woodford (1990) found that finite state Markov sunspot equilibria may be stable under learning. We show that common factor representations generalize to all sunspot equilibria the representations used by Woodford (1990). We find that if finite state Markov sunspots are stable under learning then all sunspots are stable under learning, provided common factor representations are used.
    Keywords: E52, E32, D83, D84
    JEL: E52 E32 D83 D84
    Date: 2007–01–01
  3. By: Bianchi, Francesco; Mumtaz, Haroon; Surico, Paolo
    Abstract: This paper models the evolution of monetary policy, the term structure of interest rates and the UK economy across policy regimes. We model the interaction between the macroeconomy and the term structure via a time-varying VAR model which is augmented with factors from the yield curve. Our results suggest that the characteristics of the yield curve (e.g. level, slope and curvature) display substantial time variation with the level factor moving closely with measures of inflation expectations. Our estimates indicate a large decline in volatility associated with the yield curve and macroeconomic variables, with the period of stability coinciding with the inflation targeting regime. The link between the macroeconomy and the yield curve has also changed over time with fluctuations in the level factor less important for inflation after 1997. In addition, policy rates appear to have responded more systematically to inflation and unemployment in the current regime and the contribution of the policy shock has been low. Finally, in contrast to a fixed coefficients specification, theoretical yields predicted by our time-varying model are very close to actual data and deviations from the expectations hypothesis have been rare.
    Keywords: FAVAR; Great Stability; Term Structure; Expectation Theory
    JEL: G14 C32 E58 E43
    Date: 2007–01–25
  4. By: Laura Veldkamp; Justin Wolfers
    Date: 2006
  5. By: Gordon Menzies; Daniel Zizzo
    Abstract: We present a macroeconomic market experiment on the financial determination of exchange rates, and consider whether the assumption that belief formation be treated as a classical hypothesis test, which we label inferential expectations, can explain the effect of uncertainty on exchange rates. In a non-stochastic environment, exchange rates closely follow standard predictions. In our stochastic environment, inferential expectations with a low test size alpha (conservative inferential expectations) predict exchange rates better than rational expectations in ten sessions out of twelve. Belief conservatism appears magnified rather than diminished at the market level, and the degree of belief conservatism seems connected to the failure of uncovered interest rate parity regressions.
    JEL: C91 D84 E50 F31
    Date: 2006–12
  6. By: Laurence Lasselle; Serge Svizzero; Clem Tisdell
    Abstract: We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark-Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.
    Keywords: Bounded rationality, Cobweb model, Flip bifurcation, Neimark-Sacker bifurcation.
    JEL: C62 D84 E30
    Date: 2007–01
  7. By: Paul Wachtel
    Date: 2006
  8. By: Caroline Schmidt (KOF, Swiss Institute of Business Cycle Research, ETH Zurich)
    Abstract: In this paper, it is argued that the observed high positive correlation between national savings and investment which is found in the data can in part be explained by shocks to monetary policy. This hypothesis, which is established by reviewing some empirical .ndings, is tested in a two-country DSGE-model framework in the tradition of the New Open Economy Macroeconomics. The simulation results obtained support the idea that shocks to monetary policy might contribute to the explanation of the Feldstein-Horioka puzzle.
    Keywords: Savings Investment Correlations,Monetary Policy Shocks, Feldstein- Horioka Puzzle, Local-currency pricing; Investment Correlations,Monetary Policy Shocks, Feldstein- Horioka Puzzle, Local-currency pricing
    JEL: E2 E52 F32
    Date: 2006–08
  9. By: Christian Gianella
    Abstract: The Russian economy continues to grow strongly, buoyed by rising terms of trade, which, in turn, are supporting a boom in domestic consumption. This paper addresses the challenge that the adjustment to sustained high oil prices poses for macroeconomic management. It first examines the impact of rising terms of trade on the domestic economy, particularly with respect to exchange-rate appreciation, competitiveness and inflation. It then considers the role of monetary and fiscal policies in ensuring a smooth adjustment to the higher terms of trade. The paper argues that fiscal policy should be the primary instrument for tackling this challenge. It therefore focuses on the potential role of a fiscal rule in insulating the economy and the budget from commodity-price fluctuations, and on the management of windfall oil and gas revenues accumulated in the fiscal Stabilisation Fund. <P>Une règle d’or pour la Russie? Comment une politique budgétaire fondée sur des règles peut permettre un ajustement en douceur aux nouveaux termes de l’échange. <BR>L’économie russe continue de croître à un rythme élevé, bénéficiant d’une amélioration prolongée des termes de l’échange qui alimente la forte hausse de la consommation intérieure. Cette étude analyse le défi que l’adaptation à des prix du pétrole durablement élevés suscite en termes de gestion macroéconomique. Il examine d’abord les conséquences de l’augmentation des termes de l’échange sur l’économie nationale, en particulier son impact sur l’appréciation du taux de change, la compétitivité et l’inflation. Il analyse ensuite le rôle que les politiques monétaire et budgétaire peuvent jouer pour garantir un ajustement en douceur à cette augmentation des termes de l’échange. Le chapitre conclut que la politique budgétaire devrait être l’instrument à privilégier pour réaliser cet ajustement. Enfin, l’étude considère le rôle que peuvent potentiellement jouer des règles budgétaires pour mettre l’économie et le budget à l’abri des fluctuations des prix des matières premières, et se concentre sur la gestion des recettes pétrolières et gazières exceptionnelles transférées dans le Fonds de stabilisation.
    Keywords: fiscal policy, politique budgétaire, monetary policy, politique monétaire, Russia, Russie, dutch disease, syndrome néerlandais, macroeconomic management, gestion macroéconomique
    JEL: E52 E63 O23
    Date: 2007–01–15
  10. By: Kumakura, Masanaga
    Abstract: Against the background of increasing regional trade and investment, there is growing interest in monetary and macroeconomic policy coordination in East Asia. Although there is a sizable literature on macroeconomic linkages among East Asian countries and the potential merit of policy coordination in the region, the existing studies tend to examine these issues exclusively in terms of macroeconomic variables and do not consider how these aggregate variables are influenced by one prominent feature of a number of East Asian economies: their heavy dependence on the electronics industry. Although active engagement in the global electronics industry has been a powerful growth engine for the Asian countries, it has also left their economies vulnerable to cyclical fluctuations in the world electronics market. As the cycle of the global electronics industry exerts profound impacts on the medium-term dynamics of the Asian economies, it is imperative to take an explicit account of its influence when studying the way in which the regional economies are linked to one another and how this relationship can be altered by a specific policy initiative. We illustrate the importance of this point by examining recent studies on: (1) trade competition between China andother Asian countries and the role of the Chinese renminbi therein; and (2) the effect offluctuations in the yen/dollar exchange rate on the regional economies.
    Keywords: Electronics cycle, Export competition, Renminbi, Yen/dollar exchange rate, Electronics, International trade, Foreign exchange, East Asia, Southeast Asia
    JEL: F14 F15 F33
    Date: 2006–10
  11. By: Christopher L. Gilbert (Università degli Studi di Trento); Duo Qin (Queen Mary, University of London)
    Abstract: Measurement forms the substance of econometrics. This chapter outlines the history of econometrics from a measurement perspective – how have measurement errors been dealt with and how, from a methodological standpoint, did econometrics evolve so as to represent theory more adequately in relation to data? The evolution is organized in terms of four phases: ‘theory and measurement’, ‘measurement and theory’, ‘measurement with theory’ and ‘measurement without theory’. The question of how measurement research has helped in the advancement of knowledge advance is discussed in the light of this history.
    Keywords: Econometrics, History, Measurement error
    JEL: B16 B23 C10 C50
    Date: 2007–01
  12. By: Umezaki, So
    Abstract: This paper provides a case study to characterize the monetary policy regime in Malaysia, from a medium- and long-term perspective. Specifically, we ask how the central bank of Malaysia, Bank Negara Malaysia (BNM), has structured its monetary policy regime, and how it has conducted monetary and exchange rate policy under the regime. By conducting three empirical analyses, we characterize the monetary and exchange rate policy regime in Malaysia by three intermediate solutions on three vectors: the degree of autonomy in monetary policy, the degree of variability of the exchange rate, and the degree of capital mobility.
    Keywords: Monetary policy, Exchange rate, Capital control, Malaysia, Foreign exchange, Capital market
    JEL: E42 E58 F41
    Date: 2006–12

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