nep-cba New Economics Papers
on Central Banking
Issue of 2008‒10‒13
28 papers chosen by
Alexander Mihailov
University of Reading

  1. Stabilizing Expectations under Monetary and Fiscal Policy Coordination By Stefano Eusepi; Bruce Preston
  2. The High Cross-Country Correlations of Prices and Interest Rates By Henriksen, Espen; Kydland, Finn; Sustek, Roman
  3. Understanding the Flattening Phillips Curve By Ken Kuttner; Tim Robinson
  4. Inflation-Output Tradeoff as Equilibrium Outcome of Globalization By Alon Binyamini; Assaf Razin
  5. Should there be a coordinated response to the problem of global imbalances? Can there be one? By Barry Eichengreen
  6. Quadratic Labor Adjustment Costs and the New-Keynesian Model By Wolfgang Lechthaler; Dennis Snower
  7. Temporary Price Changes and the Real Effects of Monetary Policy By Patrick J. Kehoe; Virgiliu Midrigan
  8. Nontraded Goods, Market Segmentation, and Exchange Rates By Michael Dotsey; Margarida Duarte
  9. Sudden Stops, Sectoral Reallocations, and the Real Exchange Rate By Timothy J. Kehoe; Kim J. Ruhl
  10. "What's a Central Bank to Do? Policy Response to the Current Crisis" By L. Randall Wray
  11. Investigating uncertainty in macroeconomic forecasts by stochastic simulation By Debby Lanser; Henk Kranendonk
  12. Measurement Error in Monetary Aggregates: A Markov Switching Factor Approach By Barnett, William A.; Chauvet, Marcelle; Tierney, Heather L. R.
  13. Explanations of the inconsistencies in survey respondents'forecasts By Clements, Michael P.
  14. Rounding of probability forecasts : The SPF forecast probabilities of negative output growth By Clements, Michael P.
  15. A Frictionless Economy With Subotimizing Agents By José Manuel Gutiérrez
  16. Are Central Banks following a linear or nonlinear (augmented) Taylor rule? By Castro, Vítor
  17. Market Work, Home Work and Taxes: A Cross Country Analysis By Richard Rogerson
  18. Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents By Kazuo Mino; Yasuhiro Nakamoto
  19. Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods By Raj Chetty
  20. Modeling Volatility Spillovers between the Variabilities of US Ingflation and Output: the UECCC GARCH Model By Christian Conrad; Menelaos Karanasos
  21. Evaluating CPB’s published GDP growth forecasts By Adam Elbourne; Henk Kranendonk; Rob Luginbuhl; Bert Smid; Martin Vromans
  22. The Canadian Dollar and Commodity Prices: Has the Relationship Changed over Time? By Philipp Maier; Brian DePratto
  23. Offshoring, Relocation and the Speed of Convergence in the Enlarged European Union By Kari E.O. Alho; Ville Kaitila; Mika Widgrén
  24. "Inflation Targeting in Brazil" By Philip Arestis; Luiz Fernando de Paula; Fernando Ferrari-Filho
  25. La transmisión de los choques a la tasa de cambio sobre la inflación de los bienes importados en presencia de asimetrías By Andrés González; Hernán Rincón; Norberto Rodríguez
  26. An empirical analysis of the money demand function in India By Inoue, Takeshi; Hamori, Shigeyuki
  27. Cambodia's Persistent Dollarization: Causes and Policy Options By Menon, Jayant
  28. AGEFIS:Applied General Equilibrium for FIScal Policy Analysis By Arief Anshory Yusuf; Djoni Hartono; Wawan Hermawan; Yayan

  1. By: Stefano Eusepi; Bruce Preston
    Abstract: This paper analyzes the constraints imposed on monetary and fiscal policy design by expectations formation. Households and firms learn about the policy regime using historical data. Regime uncertainty substantially narrows, relative to a rational expectations analysis of the model, the menu of policies consistent with expectations stabilization. There is greater need for policy coordination: the specific choice of monetary policy limits the set of fiscal policies consistent with macroeconomic stability --- and simple Taylor-type rules frequently lead to expectations-driven instability. In contrast, non-Ricardian fiscal policies combined with an interest rate peg promote stability. Resolving uncertainty about the prevailing monetary policy regime improves stabilization policy, enlarging the menu of policy options consistent with stability. However, there are limits to the benefits of communicating the monetary policy regime: the more heavily indebted the economy, the greater is the likelihood of expectations-driven instability. More generally, regardless of agents' knowledge of the policy regime, even when expectations are anchored in the long term, short-term dynamics display greater volatility than under rational expectations.
    JEL: E52 E62
    Date: 2008–10
  2. By: Henriksen, Espen; Kydland, Finn; Sustek, Roman
    Abstract: We document that, at business cycle frequencies, fluctuations in nominal variables, such as aggregate price levels and nominal interest rates, are substantially more synchronized across countries than fluctuations in real output. To the extent that domestic nominal variables are determined by domestic monetary policy, and central banks generally attempt to keep the domestic nominal environment stable, this might seem surprising. We ask if a parsimonious international business cycle model can account for this aspect of cross-country aggregate fluctuations. It can. Due to spillovers of technology shocks across countries, expected future responses of national central banks to fluctuations in domestic output and inflation generate movements in current prices and interest rates that are synchronized across countries even when output is not. Even modest spillovers produce cross-country correlations such as those in the data.
    Keywords: International business cycles; prices; interest rates.
    JEL: E43 F42 E32 E31
    Date: 2008–09–12
  3. By: Ken Kuttner (Williams College); Tim Robinson (Reserve Bank of Australia)
    Abstract: Policy-makers have recently noted an apparent flattening of the Phillips curve. The implications of such a change include that a positive output gap would be less inflationary, but the cost of reducing inflation, once established, would increase. This paper’s objective is to review the evidence and possible explanations for the flattening of the Phillips curve in the context of new-Keynesian economic theory. Using data for the United States and Australia, we find that the flattening is evident in the baseline ‘structural’ new-Keynesian Phillips curve. We consider a variety of reasons for this structural flattening, such as data problems, globalisation and alternative definitions of marginal cost, none of which is entirely satisfactory.
    Keywords: Phillips curve; inflation
    JEL: E31 E32
    Date: 2008–10
  4. By: Alon Binyamini; Assaf Razin
    Abstract: The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced, when the economy opens up; under such welfare-based monetary policy.
    JEL: E3 E4 E5 F37 F4 F41
    Date: 2008–10
  5. By: Barry Eichengreen
    Abstract: This paper analyzes the options for international policy coordination in order to redress the global imbalances. The case for policy coordination rests on a number of assumptions such as the existence of important spillover effects of national policies and a common understanding of the nature of the problem. In reality, important obstacles exist to get to effective policy coordination, including resistance from domestic interest groups and disagreement of the effectiveness of policy instruments. These obstacles can be reduced by developing a multilateral consensus on common goals and by addressing commitment problems via issuing multi-year schedules for policy adjustments.
    Keywords: Global imbalances, international policy coordination, international financial architecture
    JEL: F32 F33 F53
    Date: 2008–09
  6. By: Wolfgang Lechthaler; Dennis Snower
    Abstract: We build quadratic labor adjustment costs into an otherwise standard New-Keynesian model of the business cycle and show that this is sufficient to increase both, output and inflation persistence
    Keywords: Monetary Persistence, Labor Adjustment Costs
    JEL: E24 E32 E52 J23
    Date: 2008–10
  7. By: Patrick J. Kehoe; Virgiliu Midrigan
    Abstract: In the data, prices change both temporarily and permanently. Standard Calvo models focus on permanent price changes and take one of two shortcuts when confronted with the data: drop temporary changes from the data or leave them in and treat them as permanent. We provide a menu cost model that includes motives for both types of price changes. Since this model accounts for the main regularities of price changes, its predictions for the real effects of monetary policy shocks are useful benchmarks against which to judge existing shortcuts. We find that neither shortcut comes close to these benchmarks. For monetary policy analysis, researchers should use a menu cost model like ours or at least a third, theory-based shortcut: set the Calvo model's parameters so that it generates the same real effects from monetary shocks as does the benchmark menu cost model. Following either suggestion will improve monetary policy analysis.
    JEL: E12 E5 E58
    Date: 2008–10
  8. By: Michael Dotsey; Margarida Duarte
    Abstract: Empirical evidence suggests that movements in international relative prices are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect driving international relative price movements. In this paper we show that nontraded goods play an important role in the context of an otherwise standard open-economy macromodel. Our quantitative study with nontraded goods generates implications along several dimensions that are more closely in line with the data relative to the model that abstracts from nontraded goods. In addition, contrary to a large literature, standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.
    Keywords: exchange rates; nontraded goods; distribution services; incomplete asset markets.
    JEL: F3 F41
    Date: 2008–10–01
  9. By: Timothy J. Kehoe; Kim J. Ruhl
    Abstract: A sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses, a depreciation of the real exchange rate, and decreases in output and total factor productivity. Substantial reallocation takes place from the nontraded sector to the traded sector. We construct a multisector growth model, calibrate it to the Mexican economy, and use it to analyze Mexico's 1994-95 crisis. When subjected to a sudden stop, the model accounts for the trade balance reversal and the real exchange rate depreciation, but it cannot account for the decreases in GDP and TFP. Extending the model to include labor frictions and variable capital utilization, we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables.
    JEL: E13 F34 F41
    Date: 2008–10
  10. By: L. Randall Wray
    Abstract: As homeowner equity continues to disappear, there is a growing consensus that losses on all mortgages will exceed $1 trillion, with financial losses spreading far beyond real estate. Mortgage rates are spiking and, more generally, interest rate spreads remain wide, as financial players shun private debt in the rush to safe Treasury securities. Labor markets continue to weaken as firms shed jobs, and state tax revenues have plummeted. In March, the dollar fell to new record lows against the euro and other currencies. Commodities prices have boomed, fueling inflation and adding to consumer distress. What's a central bank to do? So far, the Federal Reserve has met or exceeded the market's anticipations for rate cuts. It has allowed banks to offer securitized mortgages as collateral against borrowed reserves, and opened its discount window to a broad range of financial institutions to guard against future liquidity problems (remember Bear Stearns?). It helped to formulate a rescue plan for Freddie Mac and Fannie Mae, and Chairman Ben Bernanke even supported the fiscal stimulus package that will increase the federal budget deficit—something that is normally anathema to central bankers. Most importantly, Fed officials have consistently argued that, while they are carefully monitoring inflation pressures, they will not reverse monetary easing until the fallout from the subprime crisis is past. Unfortunately, the policy isn't working--the economy continues to weaken, the financial crisis is spreading, and inflation is accelerating. The problem is that policymakers do not recognize the underlying forces driving the crisis, in part because they operate with an incorrect model of how our economy works. This Policy Note summarizes that model, offers an alternative view based on Hyman Minsky's approach, and outlines an alternative framework for policy formation.
    Date: 2008–08
  11. By: Debby Lanser; Henk Kranendonk
    Abstract: Uncertainty is an inherent attribute of any forecast. In this paper, we investigate four sources of uncertainty with CPB’s macroeconomic model SAFFIER: provisional data, exogenous variables, model parameters and residuals of behavioural equations. We apply a Monte Carlo simulation technique to calculate standard errors for the short-term and medium-term horizon for GDP and eight other macroeconomic variables. The results demonstrate that the main contribution to the total variance of a medium-term forecast, emanates from the uncertainty in the exogenous variables. For the short-term forecast both exogenous variables and provisional data are most relevant.
    Keywords: Monte Carlo simulation; Macro economic forecasting; Model uncertainty
    JEL: C15 C53 E20 E27
    Date: 2008–09
  12. By: Barnett, William A.; Chauvet, Marcelle; Tierney, Heather L. R.
    Abstract: This paper compares the different dynamics of the simple sum monetary aggregates and the Divisia monetary aggregate indexes over time, over the business cycle, and across high and low inflation and interest rate phases. Although traditional comparisons of the series sometimes suggest that simple sum and Divisia monetary aggregates share similar dynamics, there are important differences during certain periods, such as around turning points. These differences cannot be evaluated by their average behavior. We use a factor model with regime switching. The model separates out the common movements underlying the monetary aggregate indexes, summarized in the dynamic factor, from individual variations in each individual series, captured by the idiosyncratic terms. The idiosyncratic terms and the measurement errors reveal where the monetary indexes differ. We find several new results. In general, the idiosyncratic terms for both the simple sum aggregates and the Divisia indexes display a business cycle pattern, especially since 1980. They generally rise around the end of high interest rate phases – a couple of quarters before the beginning of recessions – and fall during recessions to subsequently converge to their average in the beginning of expansions. We find that the major differences between the simple sum aggregates and Divisia indexes occur around the beginnings and ends of economic recessions, and during some high interest rate phases. We note the inferences’ policy relevance, which is particularly dramatic at the broadest (M3) level of aggregation. Indeed, as Belongia (1996) has observed in this regard, “measurement matters.”
    Keywords: Measurement Error, Divisia Index, Aggregation, State Space, Markov Switching, Monetary Policy
    JEL: E51 C30 E4
    Date: 2008–08–06
  13. By: Clements, Michael P. (Department of Economics,University of Warwick)
    Abstract: A comparison of the point forecasts and the central tendencies of probability distributions of inflation and output growth of the SPF indicates that the point forecasts are sometimes optimistic relative to the probability distributions. We consider and evaluate a number of possible explanations for this finding, including the degree of uncertainty concerning the future, computational costs, delayed updating, and asymmetric loss. We also consider the relative accuracy of the two sets of forecasts.
    Keywords: Rationality ; point forecasts ; probability distributions
    JEL: C53 E32 E37
    Date: 2008
  14. By: Clements, Michael P. (Department of Economics,University of Warwick)
    Abstract: We consider the possibility that respondents to the Survey of Professional Forecasters round their probability forecasts of the event that real output will decline in the future. We make various assumptions about how forecasters round their forecasts, including that individuals have constant patterns of responses across forecasts. Our primary interests are the impact of rounding on assessments of the internal consistency of the probability forecasts of a decline in real output and the histograms for annual real output growth, and on the relationship between the probability forecasts and the point forecasts of quarterly output growth.
    Keywords: Rounding ; probability forecasts ; probability distributions
    JEL: C53 E32 E37
    Date: 2008
  15. By: José Manuel Gutiérrez
    Abstract: The existence of short-term monetary equilibrium in a frictionless economy with suboptimal agents is proved for any (reasonable) given interest rate. Separability ideas (as defined in Decision Theory) are applied. Two financial markets are in operation: for bank contracts (deposits and credits) and for shares.
    JEL: C62 D53
    Date: 2008–08
  16. By: Castro, Vítor (University of Warwick, University of Coimbra and NIPE)
    Abstract: The Taylor rule establishes a simple linear relation between the interest rate, inflation and output gap. However, this relation may not be so simple. To get a deeper understanding of central banks’ behaviour, this paper asks whether central banks are indeed following a linear Taylor rule or, instead, a nonlinear rule. At the same time, it also analyses whether that rule can be augmented with a financial conditions index containing information from some asset prices and financial variables. A forward-looking monetary policy reaction function is employed in the estimation of the linear and nonlinear models. A smooth transition model is used to estimate the nonlinear rule. The results indicate that the European Central Bank and the Bank of England tend to follow a nonlinear Taylor rule, but not the Federal Reserve of the United States. In particular, those two central banks tend to react to inflation only when inflation is above or outside their targets. Moreover, our evidence suggests that the European Central Bank is targeting financial conditions, contrary to the other two central banks. This lack of attention to the financial conditions might have made the United States and the United Kingdom more vulnerable to the recent credit crunch than the Eurozone.
    Keywords: Taylor rule ; ECB monetary policy ; Financial Conditions Index ; Nonlinearity ; Smooth transition regression models
    JEL: E43 E44 E52 E58
    Date: 2008
  17. By: Richard Rogerson
    Abstract: This paper uses a simple model of labor supply extended to allow for home production to understand the extent to which differences in taxes can account for differences in time allocations between the US and Europe. Once home production is included, the elasticity of substitution between consumption and leisure is almost irrelevant in determining the response of market hours to higher taxes. But to account for observed differences in leisure and time spent in home production, one requires a large elasticity of substitution between consumption and leisure, and a small elasticity of substituion betwen time and goods in home production.
    JEL: E60 H20 J22
    Date: 2008–10
  18. By: Kazuo Mino (Graduate School of Economics, Osaka University); Yasuhiro Nakamoto (Graduate School of Economics, Osaka University)
    Abstract: This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogenous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if the intragroup externalities dominates the intrergroup external effects, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, if the intergroup external effects of consumption are strong enough, the steady-state equilibrium is either unstable or locally indeterminate. Based on the analytical as well as numerical considerations, we give intuitive implications of stability conditions.
    Keywords: Consumption externalities, Equilibrium determinacy, Heterogeneous agents, Progressive taxation
    JEL: E52 O42
    Date: 2008–09
  19. By: Raj Chetty
    Abstract: The debate between "structural" and "reduced-form" approaches has generated substantial controversy in applied economics. This article reviews a recent literature in public economics that combines the advantages of reduced-form strategies -- transparent and credible identification -- with an important advantage of structural models -- the ability to make predictions about counterfactual outcomes and welfare. This recent work has developed formulas for the welfare consequences of various policies that are functions of high-level elasticities rather than deep primitives. These formulas provide theoretical guidance for the measurement of treatment effects using program evaluation methods. I present a general framework that shows how many policy questions can be answered by identifying a small set of sufficient statistics. I use this framework to synthesize the modern literature on taxation, social insurance, and behavioral welfare economics. Finally, I discuss topics in labor economics, industrial organization, and macroeconomics that can be tackled using the sufficient statistic approach.
    JEL: C1 H0 J0 L0
    Date: 2008–10
  20. By: Christian Conrad (University of Heidelberg, Department of Economics); Menelaos Karanasos (Economics and Finance, Brunel University)
    Abstract: This paper employs the unrestricted extended constant conditional correlation GARCH specification proposed in Conrad and Karanasos (2008) to examine the intertemporal relationship between the uncertainties of inflation and output growth in the US. We find that inflation uncertainty effects output variability positively, while output variability has a negative effect on inflation uncertainty.
    Keywords: Bivariate GARCH process, negative volatility feedback, inflation uncertainty, output variability
    JEL: C32 C51 E31
    Date: 2008–09
  21. By: Adam Elbourne; Henk Kranendonk; Rob Luginbuhl; Bert Smid; Martin Vromans
    Abstract: We compare the accuracy of our published GDP growth forecasts from our large macro model, SAFFIER, to those produced by VAR based models using both classical and Bayesian estimation techniques. We employ a data driven methodology for selecting variables to include in our VAR models and we find that a randomly selected classical VAR model performs worse in most cases than the Bayesian equivalent, which performs worse than our published forecasts in most cases. However, when we pool forecasts across many VARs we can produce more accurate forecasts than we published. A review of the literature suggests that forecast accuracy is likely irrelevant for the non-forecasting activities the model is used for at CPB because they are fundamentally different activities.
    Keywords: SEMs; VAR models; Forecast combination; Bayesian methods; Real time
    JEL: C52 C53 E37
    Date: 2008–10
  22. By: Philipp Maier; Brian DePratto
    Abstract: The authors examine the impact of the recent run-up in energy and non-energy commodity prices on the Canadian dollar. Using the Bank of Canada's exchange rate equation, they find that the differences between the actual value of the Canadian exchange rate and the simulated values observed in 2007 are not historically large. Still, given that there is some evidence that the sensitivity of the standard exchange rate equation to changes in energy and non-energy commodities may have changed over time, the authors explore different ways of modelling the impact of energy and non-energy commodity prices. Their results indicate that specifications that explicitly consider the importance of energy and non-energy commodities in Canada's export or production basket may yield more stable coefficient estimates, particularly over recent periods. Future research should investigate the robustness of these findings, particularly if, at some point, price increases for energy and non-energy commodities were to moderate.
    Keywords: Exchange rates
    JEL: F31
    Date: 2008
  23. By: Kari E.O. Alho; Ville Kaitila; Mika Widgrén
    Abstract: ABSTRACT : Economic convergence of the new member states (NMS) of the EU towards the old EU countries (EU-15), not only in terms of real income, but also in nominal terms, is of paramount importance for the whole of the EU. We build a dynamic CGE model, starting from the Balassa-Samuelson two-sector framework, but modify and enlarge it with forward-looking investment, consumption, and labour mobility behaviour to address several other issues like welfare and sustainability in terms of foreign indebtedness. At the same time we evaluate the impact of convergence on the EU-15 countries also, by endogenising offshoring and the related FDI flows from them to the NMS. Thereby we identify various effects of relocation and globalisation on the EU-15 enlarging the standard set of effects of globalisation and demonstrate the key role of their dynamic nature in the process of convergence. We find that in a general equilibrium setting fears of large adverse effects of a relocation of EU-15 manufacturing to the NMS are not well founded. In contrast, offshoring appears to be a win-win case for both the EU-15 and the NMS in terms of real income. The convergence of the NMS is fairly rapid, but will involve a persistent rapid inflation rate.
    Keywords: convergence, relocation, new member states, EU-15
    JEL: F15 F21 F43
    Date: 2008–10–03
  24. By: Philip Arestis; Luiz Fernando de Paula; Fernando Ferrari-Filho
    Abstract: The purpose of this paper is to examine inflation targeting (IT) in emerging countries by concentrating essentially on the case of Brazil. The IT monetary policy regime has been adopted by a significant number of countries. While the focus of this paper is on Brazil, which began inflation targeting in 1999, we also examine the experience of other countries, both for comparative purposes and for evidence of the extent of this "new" economic policy's success. In addition, we compare the experience of Brazil with that of non-IT countries, and ask the question of whether adopting IT makes a difference in the fight against inflation.
    Date: 2008–09
  25. By: Andrés González; Hernán Rincón; Norberto Rodríguez
    Abstract: En este documento estimamos el grado de transmisión de corto y largo plazo sobre la inflación de los bienes importados de un choque a la tasa de devaluación nominal en presencia de asimetrías. Utilizamos una ecuación estándar de pass-through para modelos con competencia imperfecta, datos trimestrales de Colombia para el período 1985 a 2007 y modelos econométricos lineales y no lineales. Los resultados muestran que la transmisión es menos que proporcional, sin importar el plazo considerado. También se encuentra que el grado y la dinámica de la transmisión son endógenos y asimétricos al signo, tamaño y volatilidad de los tasa de cambio y al estado de la economía. La transmisión es mayor cuando la economía está en auge, es más abierta, las firmas esperan que los movimientos en la tasa de cambio sean permanentes, la tasa de cambio real está depreciada, la tasa de cambio nominal se devalúa y la inflación es mayor.
    Keywords: Transmisión de los choques a la devaluación sobre la inflación (exchange rate pass-through), asimetrías, modelo VAR-lineal, modelo VAR de regresión no lineal de transición suave logística (VAR-LSTR) Classification JEL: F31; E31; E52; C51; C52.
  26. By: Inoue, Takeshi; Hamori, Shigeyuki
    Abstract: This paper empirically analyzes India’s money demand function during the period of 1980 to 2007 using monthly data and the period of 1976 to 2007 using annual data. Cointegration test results indicated that when money supply is represented by M1 and M2, a cointegrating vector is detected among real money balances, interest rates, and output. In contrast, it was found that when money supply is represented by M3, there is no long-run equilibrium relationship in the money demand function. Moreover, when the money demand function was estimated using dynamic OLS, the sign onditions of the coefficients of output and interest rates were found to be consistent with theoretical rationale, and statistical significance was confirmed when money supply was represented by either M1 or M2. Consequently, though India’s central bank presently uses M3 as an indicator of future price movements, it is thought appropriate to focus on M1 or M2, rather than M3, in managing monetary policy.
    Keywords: Cointegration, DOLS, Money, Money demand, Monetary policy, India
    JEL: E41 E51
    Date: 2008–09
  27. By: Menon, Jayant (Asian Development Bank)
    Abstract: Cambodia's economic and social achievements over the past ten years have been the most impressive in its history. Nevertheless, Cambodia today is still as dollarized, if not more so, than it was ten years ago. What is this so, and what, if anything, should the Government do? This paper attempts to answer both these questions, by examining the reasons behind the apparent paradox between a decade of economic and political improvements and continued dollarization, and drawing policy implications from it. We advise against pursuing enforced dedollarization, and advocate a policy option that focuses instead on accelerating accommodative reforms, especially in the financial sector and on legal and institutional reforms. We also identify a host of institutional barriers that need to be overcome to prepare the groundwork for a natural process of de-dollarization.
    Keywords: Cambodia; dollarization; exchange rates; currency board; hysteresis
    JEL: E42 E58 F31 F33
    Date: 2008–09–01
  28. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University); Djoni Hartono (Graduate Program of Economics, University of Indonesia); Wawan Hermawan (Department of Economics, Padjadjaran University); Yayan (Department of Economics, Padjadjaran University)
    Abstract: AGEFIS (Applied General Equilibrium model for FIScal Policy Analysis) is a Computable General Equilibrium (CGE) model designed specifically, but not limited, to analyze various aspects of fiscal policies in Indonesia. It is yet, the first Indonesian fully-SAM-based CGE model solved by Gempack. This paper describes the structure of the model and illustrates its application.
    Keywords: AGEFIS, CGE, Fiscal Policy, Indonesia
    JEL: C68 D58 H30
    Date: 2008–10

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