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on Central Banking |
| By: | Andrew T. Levin; J. David López-Salido; Edward Nelson; Tack Yun |
| Abstract: | Many recent studies in macroeconomics have focused on the estimation of DSGE models using a system of loglinear approximations to the models' nonlinear equilibrium conditions. The term macroeconometric equivalence encapsulates the idea that estimates using aggregate data based on first-order approximations to the equilibrium conditions of a DSGE model will not be able to distinguish between alternative underlying preferences and technologies. The concept of microeconomic dissonance refers to the fact that the underlying microeconomic differences become important when optimal monetary policy is analyzed in a nonlinear setting. The relevance of these concepts is established by analysis of optimal steady-state inflation and optimal policy in the stochastic economy using a small-scale New Keynesian model. Microeconomic and financial datasets are promising tools with which to overcome the equivalence problem. |
| Keywords: | Monetary policy ; Macroeconomics ; Microeconomics |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-035&r=cba |
| By: | Roger E.A. Farmer; Daniel F. Waggoner; Tao Zha |
| Abstract: | We develop a new method for computing minimal state variable solutions (MSV) to Markov-switching rational expectations models. We provide an algorithm to compute an MSV solution and show how to test a given solution for uniqueness and boundedness. We construct an example that is calibrated to U.S. data and show that the MSV solution in our example is unique. This solution can potentially explain in three different ways the observed reduction in the variance of inflation and the interest rate after 1980: The policy rule might have changed, the variance of the fundamental shocks might have fallen, or the private sector equations might have been different across regimes. We compare these three explanations for the change in variance and show that any one of them can potentially account for the facts. Our paper provides the necessary tools for a future empirical study of this issue. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-23&r=cba |
| By: | Zheng Liu; Daniel F. Waggoner; Tao Zha |
| Abstract: | This paper addresses two substantive issues: (1) Does the magnitude of the expectation effect of regime switching in monetary policy depend on a particular policy regime? (2) Under which regime is the expectation effect quantitatively important? Using two canonical DSGE models, we show that there exists asymmetry in the expectation effect across regimes. The expectation effect under the dovish policy regime is quantitatively more important than that under the hawkish regime. These results suggest that the possibility of regime shifts in monetary policy can have important effects on rational agents' expectation formation and on equilibrium dynamics. They offer a theoretical explanation for the empirical possibility that a policy shift from the dovish regime to the hawkish regime may not be the main source of substantial reductions in the volatilities of inflation and output. |
| Keywords: | Monetary policy |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-22&r=cba |
| By: | Richard Dennis |
| Abstract: | In this paper I show that discretionary policymaking can be superior to timeless perspective policymaking and identify model features that make this outcome more likely. Developing a measure of conditional loss that treats the auxiliary state variables that characterize the timeless perspective equilibrium appropriately, I use a New Keynesian DSGE model to show that discretion can dominate timeless perspective policymaking when the Phillips curve is relatively flat, due, perhaps, to firm-specific capital (or labor) and/or Kimball (1995) aggregation in combination with nominal price rigidity. These results suggest that studies applying the timeless perspective might also usefully compare its performance to discretion, paying careful attention to how policy performance is evaluated. |
| Keywords: | Monetary policy |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-21&r=cba |
| By: | Peter Flaschel (Bielefeld University, Germany); Reiner Franke (Kiel University, Germany); Christian Proano (IMK at the Hans Boeckler Foundation) |
| Abstract: | This paper shows that an analytical determinacy analysis of the baseline New Keynesian model with both staggered wages and prices developed by Erceg, Henderson and Levin (2000) is possible despite the high dimensional nature of this model. It is possible if the formulation of the model is translated from discrete to continuous time. Our findings corroborates in an analytical manner Galí's (2008) numerical findings regarding the determinacy frontier and the Taylor principle for this model type, where a generalized Taylor rule that employs a weighted combination of wage and price inflation is used as a measure for the inflation gap. |
| Keywords: | Period models, continuous time, (in)determinacy. |
| JEL: | E24 E31 E32 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:11-2008&r=cba |
| By: | Adolfson, Malin (Monetary Policy Department, Central Bank of Sweden); Laseén, Stefan (Monetary Policy Department, Central Bank of Sweden); Lindé, Jesper (Monetary Policy Department, Central Bank of Sweden, Sveriges Riksbank, SE-103 37 Stockholm, Sweden and CEPR); Svensson, Lars E.O. (Central Bank of Sweden, Sveriges Riksbank, SE-103 37 Stockholm, Sweden, Princeton University, CEPR and NBER) |
| Abstract: | We show how to construct optimal policy projections in Ramses, the Riksbank’s openeconomy medium-sized DSGE model for forecasting and policy analysis. Bayesian estimation of the parameters of the model indicates that they are relatively invariant to alternative policy assumptions and supports that the model may be regarded as structural in a stable low inflation environment. Past policy of the Riksbank until 2007:3 (the end of the sample used) is better explained as following a simple instrument rule than as optimal policy under commitment. We show and discuss the differences between policy projections for the estimated instrument rule and for optimal policy under commitment, under alternative definitions of the output gap, different initial values of the Lagrange multipliers representing policy in a timeless perspective, and different weights in the central-bank loss function. |
| Keywords: | Optimal monetary policy; instrument rules; optimal policy projections; openeconomy DSGE models |
| JEL: | E52 E58 |
| Date: | 2008–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0225&r=cba |
| 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 bench-mark menu cost model. Following either suggestion will improve monetary policy analysis. |
| Keywords: | Keynesian economics ; Prices |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:413&r=cba |
| By: | Oleksiy Kryvtsov; Malik Shukayev; Alexander Ueberfeldt |
| Abstract: | This paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting. We revisit this issue by introducing imperfect credibility, which is modeled as gradual adjustment of the private sector's beliefs about the policy change. We find that gains from switching to price-level targeting are small. A welfare loss occurs, if imperfect credibility is highly persistent. |
| Keywords: | Credibility; Monetary policy framework |
| JEL: | E31 E52 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-37&r=cba |
| By: | Luis Gonzalo Llosa Author-X-Name_First: Luis Gonzalo Author-X-Name_Last: Llosa; Vicente Tuesta Author-X-Name_First: Vicente Author-X-Name_Last: Tuesta |
| Abstract: | This paper evaluates under which conditions different Taylor-type rules lead to determinacy and expectational stability (E-stability) of rational expectations equilibrium in a simple New Keynesian small open economy model, developed by Gali and Monacelli (2005). In particular, we extend the Bullard and Mitra (2002) results of determinacy and E-stability in a closed economy to this small open economy framework. Our results highlight an important link between the Taylor principle and both determinacy and learnability of equilibrium in small open economies. More importantly, the degree of openness coupled with the nature of the policy rule adopted by the monetary authorities might change this link in important ways. A key finding is that, contrary to Bullard and Mitra, expectations-based rules that involve the CPI and/or the nominal exchange rate limit the region of E-stability and the Taylor Principle does not guarantee E-stability. We also show that some forms of managed exchange rate rules can help to alleviate problems of both indeterminacy and expectational instability, yet these rules might not be desirable since they promote greater volatility in the economy. |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4479&r=cba |
| By: | Niklas J. Westelius (Hunter College) |
| Abstract: | A number of inflation targeting central banks operate under provisions that allow for increased flexibility when faced with large supply shocks. These so-called escape clauses, however, are usually hard to interpret and discretionary in nature. This paper argues that a practical and more viable option is to specify a hard edged target range. Within the range, the central bank enjoys complete independence. Should, however, a large supply shock force inflation outside the range, the government may overrule the bank unless it adjusts its policy to address the government's concerns. Such an arrangement has the advantage of being easily understood and non-discretionary. Furthermore, it is shown that the bandwidth of the target range is inversely related to the degree of flexibility of the inflation targeting regime and thus, provides an easy way for the central bank to communicate its preferences to the public. The paper also discusses various determinants of the optimal design of the target range. |
| Keywords: | Inflation Range Targeting, Discretion, Escape Clauses |
| JEL: | E52 E61 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:htr:hcecon:423&r=cba |
| By: | Juliane Scharff (Halle Institute for Economic Research (IWH)); Sven Schreiber (Goethe University Frankfurt, and Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation,) |
| Abstract: | Distortionary effects of inflation on relative prices are the main argument for inflation stabilization in macro models with sticky prices. Under indexation of non-optimized prices those models imply a nonlinear and dynamic impact of inflation on the cross-sectional price dispersion (relative-price variability, RPV). Using US sectoral prices we estimate (a generalized form of) the theoretical relationship between inflation and RPV. We confirm the impact of inflation fluctuations but find hitherto neglected endogeneity biases, and our IV and GMM estimates indicate that average ("trend") inflation is significant for indexation. Lagged inflation is less important. |
| Keywords: | relative price variability, trend inflation, endogeneity bias |
| JEL: | E31 C22 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:12-2008&r=cba |
| By: | Michal Franta (Czech National Bank; CERGE-EI); Branislav Saxa (Czech National Bank; CERGE-EI); Katerina Smidkova (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | Inflation persistence has been put forward as one of the potential reasons of divergence among euro area members. It has also been proposed that the new EU Member States (NMS) may struggle with even higher persistence due to convergence factors. We argue that persistence may not be as different between the two country groups as one might expect. However, this empirical result can only be obtained if the adequate estimation methods, reflecting the scope of the convergence process the NMS went through, are applied. We emphasize that a time-varying mean models suggest similar or lower inflation persistence for the NMS compared to euro area countries while more traditional parametric statistical measures assuming a constant mean deliver substantially higher persistence estimates for the NMS than for the euro area countries. This difference is due to frequent breaks in inflation time series in the NMS. Structural persistence measures show that backward-looking behavior may be a more important component in explaining inflation dynamics in the NMS than in the euro area countries. |
| Keywords: | inflation persistence, new hybrid Phillips curve, new member states, time-varying mean |
| JEL: | E31 C22 C11 C32 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2008_25&r=cba |
| By: | Ali Dib; Caterina Mendicino; Yahong Zhang |
| Abstract: | How important are the benefits of low price-level uncertainty? This paper explores the desirability of price-level path targeting in an estimated DSGE model fit to Canadian data. The policy implications are based on social welfare evaluations. Compared to the historical inflation targeting rule, an optimal price level targeting regime substantially reduces the welfare cost of business cycle fluctuations in terms of steady state consumption. The optimal price-level targeting rule performs also better than the optimal inflation targeting rule in minimizing the distortion generated by the presence of nominal debt contracts. The occurrence of financial shocks, which are among the main sources of business cycle fluctuations in the model, significantly contributes to quantify the welfare gains of price level targeting. |
| Keywords: | Financial stability; Inflation and prices; Monetary policy framework |
| JEL: | E31 E32 E52 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-40&r=cba |
| By: | Menno Middeldorp; Stephanie Rosenkranz |
| Abstract: | Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), suggest that central bank communication crowds out private information acquisition and that this effect can lead to a deterioration of the ability of financial markets to predict future policy interest rates. We examine this result in an experimental asset market that closely follows the theoretical model. Crowding out of information acquisition takes place and, where this crowding out is most rapid, there is deterioration of the market’s predictive ability. This supports the theoretical result that central bank communication can actually make it more difficult for financial markets to predict future policy rates. |
| Keywords: | Experimental Economics, Private Information Acquisition, Information and Financial Market Efficiency, Central bank transparency and communication |
| JEL: | C92 D82 E58 G14 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0826&r=cba |
| By: | Hafedh Bouakez; Nooman Rebei; Désiré Vencatachellum |
| Abstract: | In many developing and emerging market economies, governments intervene to limit the degree to which oil-price increases are passed through to domestic fuel prices. This paper investigates whether, and to what extent, this intervention is warranted in an oil-importing economy characterized by nominal rigidities in the goods and labor markets. Our results indicate that, to the extent that monetary policy is capable of stabilizing the economy, government intervention in the oil market must be avoided. On the other hand, when complete stabilization is not attainable as a result of sub-optimal monetary policy, the government can improve social welfare by limiting the degree of pass-through of oil prices. We find, however, that the welfare gain from pursuing such a policy is negligible. |
| Keywords: | Oil prices, pass-through, government, monetary policy, small open economy, welfare |
| JEL: | E3 E5 F3 F4 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0831&r=cba |
| By: | Stéphane Auray (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE); Aurélien Eyquem (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France); Jean-Christophe Poutineau (CREM, UMR 6211, Université de Rennes 1 and Ecole Normale Supérieure de Cachan, France) |
| Abstract: | This paper investigates the impact of alternative monetary policy regimes on the creation of new varieties in open economies. Using a dynamic two-country model incorporating nominal rigidities, international trade and firm entries we compare an independent monetary policy regime to a monetary union regime. We find that a common monetary policy defined by a nominal interest rate rule reactive to inflation increases extensive margin of trade volatility. Simulations based on business cycle frequencies indicate that on average this increase reaches 3%. Although monetary policy interdependence is found to be a key ingredient in generating this effect, we stress that those parameters affecting international trade structures are crucial in determining its magnitude. |
| Keywords: | Extensive Margin, Variety Effect, Monetary Union, Monetary Policy |
| JEL: | E51 E58 F36 F41 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:08-09&r=cba |
| By: | Federico di Pace (School of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | We propose an additional solution to the comovement puzzle by developing a two-sector monetary model with housing production and an input-output structure. The model generates comovement between consumption and residential investment for large range of shocks hitting the economy. Consistent with previous work, we find that our model produces highly persistence responses in aggregate consumption, aggregate output and residential investment. We show that the results are highly robust to different policy rule specifications. We find that the lower the labour shares, the higher the relative volatility of residential investment. The model with an IO structure is works under different specifications of the period utility function. We extend the model to allow for wage rigidities and show that our proposed solution can perfectly work alongside previous ones. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0807&r=cba |
| By: | Miguel Rueda Author-X-Name_First: Miguel Author-X-Name_Last: Rueda |
| Abstract: | This paper studies the relationship between the hazard rate of the exit of a president of a central bank and a measure of credibility in monetary policy. The expected hazard rate of exit is estimated as a function of legal and political variables. The measure of credibility is the expected probability of a disinflation beginning when inflation is rising. For a sample of 22 Latin American and G7 countries, I find a negative relationship between the hazard rate of exit and the measure of credibility. This provides evidence of the expected relationship between independence and credibility not found in previous cross country studies. Using the executive’s party ideology as a measure of aversion to inflation, there was no evidence that this relationship is different for countries where the government is identified as more conservative. However, when a president of the central bank appointed by a conservative government is in office, a rise in the probability of a disinflation beginning when inflation was rising was found. The results show that legal independence after controlling for the hazard rate of the president’s exit is not associated with credibility gains. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4585&r=cba |
| By: | Martin Boileau; Michel Normandin |
| Abstract: | We study the effects of tax shocks on the budget and external deficits for 16 industrialized countries over the post-1975 period. Our structural approach is based on a tractable small open-economy model where a tax cut innovation generates a budget deficit. In turn, the budget deficit affects the external deficit by two distinct channels. The demographic channel works through the overlapping-generation structure of the model. The forecasting channel works through the dynamic structure of the model. Our empirical analysis documents that tax shocks generate significant positive comovements between the budget and external deficits. We also find that both the demographic and forecasting channels are important to explain the comovements. |
| Keywords: | Budget Deficit, External Deficit, Fiscal Policy, Overlapping Generations |
| JEL: | E62 F32 F41 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0832&r=cba |
| By: | Thomas I. Palley (Economics for Democratic & Open Societies, Washington DC, and Visiting Scholar at the Macroeconomic Policy Institute (IMK), Germany) |
| Abstract: | Over the last several years debate over monetary policy has focused on two issues, inflation targeting and asset price bubbles. This paper explores the case for explicitly targeting asset price bubbles, a policy that the Federal Reserve Bank has opposed on the grounds that it is both infeasible and undesirable. The paper argues that the Fed is wrong on both counts. Asset price bubbles are identifiable. Bubbles also do significant economic harm through the debt footprint effects they leave behind and through interest rate blunderbuss effects resulting from attempts to mitigate the aggregate demand impact of bubbles. Managing bubbles calls for additional policy instruments. These can be provided a system of asset based reserve requirements (ABRR). |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:05-2008&r=cba |
| By: | Thomas I. Palley (Economics for Democratic & Open Societies, Washington DC, and Visiting Scholar at the Macroeconomic Policy Institute (IMK), Germany) |
| Abstract: | Romer (2000) provides an alternative model to the AS/AD and IS/LM models that abandons the LM schedule by having the short-term interest rate set by the central bank. His framework acknowledges the critical role of the central bank in determining short-term interest rates, which moves mainstream macroeconomics closer to Post Keynesian monetary theory. The current paper presents a Post Keynesian construction of macroeconomics without an LM schedule. Rather than describing the financial sector in terms of an exogenously determined interest rate set by the central bank, the model unpacks financial markets by fully specifying a banking sector. The key analytic feature of the Post Keynesian approach is to replace the money market with the loan market. That makes transparent the macroeconomic significance of the loan market and bank behavior, and generates an endogenous money supply driven by bank lending. If banks become more optimistic over the |
| Keywords: | bank lending, credit, endogenous money, loan market. |
| JEL: | E12 E40 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:13-2008&r=cba |
| By: | Peter Claeys (Faculty of Economics, University of Barcelona); Raúl Ramos (Faculty of Economics, University of Barcelona); Jordi Suriñach (Faculty of Economics, University of Barcelona) |
| Abstract: | Control on regional government budgets is important in a monetary union as lower tiers of government have fewer incentives to consolidate debt. According to the Fiscal Theory of the Price Level; unsustainable non-Ricardian fiscal policies eventually force monetary policy to adjust. Hence, uncoordinated and non-regulated regional fiscal policies would therefore threaten price stability for the monetary union as a whole. However, the union central bank is not without defense. A federal government that internalises the spillover effect of non-Ricardian fiscal policies on the price level can offset non-Ricardian regional fiscal policies. A federal government, which taxes and transfers resources between regions, may compensate for unsustainable regional fiscal policies so as to keep fiscal policy Ricardian on aggregate. Following Canzoneri et al. (2001), we test the validity of the Fiscal Theory of the Price Level for both federal and regional governments in Germany. We find evidence of a spillover effect of unsustainable policies on the price level for other Länder. However, the German federal government offsets this effect on the price level by running Ricardian policies. These results have implications for the regulation of fiscal policies in the EMU. |
| Keywords: | Sustainability, fiscal policy, FTPL, fiscal federalism. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:200812&r=cba |
| By: | Giuseppe Marotta |
| Abstract: | The harmonized MIR retail interest rates for the euro area, available as of January 2003, show remarkable differences both in levels and dynamics with the previous unharmonized NRIR rates. This evidence should suggest caution in extrapolating the findings of the NRIR-based literature on the incomplete long-run pass-through of market rates even into the short term business lending rates, the least sticky ones among bank rates. We show that long run pass-throughs for MIR rates of smaller and larger short-term business loans are almost always complete or nearly so in nine of the founding EMU countries and in Greece. |
| Keywords: | Interest rates; Monetary policy; European Monetary Union (EMU); Taylor principle |
| JEL: | E43 E52 E58 F36 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:mod:wcefin:08101&r=cba |
| By: | Stéphane Auray (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE); Aurélien Eyquem (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France); Jean-Christophe Poutineau (CREM, UMR 6211, Université de Rennes 1 and Ecole Normale Supérieure de Cachan, France) |
| Abstract: | This paper evaluates the welfare gains arising from a deeper trade integration in the European Monetary Union. To do this, the European Monetary Union is represented in a realistic way by an intertemporal general equilibrium model with incomplete financial markets, sticky prices and home bias in both private consumption and production. The model is estimated and not rejected by the data. Two main results emerge : (i) an increase in vertical (intermediate goods) trade implies welfare gains while (ii) an increase in horizontal (final goods) trade implies welfare losses. |
| Keywords: | trade integration, inflation differentials, welfare analysis, optimal currency areas |
| JEL: | F32 F41 F47 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:08-10&r=cba |
| By: | Stephane Dees; Matthias Burgert; Nicolas Parent |
| Abstract: | This paper aims at showing heterogeneity in the degree of exchange rate pass-through to import prices in major advanced economies at three different levels: 1) across destination markets; 2) across types of exporters (distinguishing developed economy from emerging economy exporters); and 3) over time. Based on monthly data over the period 1991–2007, the results show first that large destination markets exhibit the lowest degrees of pass-through. The degree of pass-through for goods imported from emerging economies is also significantly lower than for those from developed economies. Regarding the evolution over time, no clear change in pricing behaviours can be identified and particular events, like large exchange rates depreciations during the Asian crisis, seem to influence the degree of pass-through related to imports from emerging economies. |
| Keywords: | Exchange rates; Inflation and prices |
| JEL: | E31 F3 F41 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-39&r=cba |
| By: | Eckhard Hein (IMK at the Hans Boeckler Foundation); Achim Truger (IMK at the Hans Boeckler Foundation) |
| Abstract: | The New Consensus approach in macroeconomics is criticised for its exclusive but unwarranted reliance on stabilising monetary policies, for its ill-designed approach to the role of wages and wage policies, and for its complete neglect of fiscal policies. From a Post-Keynesian perspective, it is argued that fiscal policies play an important role for macroeconomic development, albeit the whole macroeconomic policy-mix of monetary, fiscal and wage policies as well as open economy conditions should be considered. Based on this view macroeconomic performance and macroeconomic policies in France, Germany, Sweden and the UK between 1996 and 2005 are analysed, with a special focus on the role of fiscal policies. It is shown that the fiscal policy stance is important for the explanation of different developments in these economies. However, fiscal policies are not the whole story, monetary policies, wage policies and open economy conditions matter as well. |
| Keywords: | Fiscal policy, macroeconomic policies, New Consensus, Post-Keynesian macroeconomics, France, Germany, UK, Sweden |
| JEL: | E61 E62 E63 E64 E65 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:03-2008&r=cba |
| By: | Araújo, Eurilton; Pinheiro, Tatiana |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_147&r=cba |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Josine Uwilingiye (Department of Economics, University of Pretoria) |
| Abstract: | This paper derives the econometric restrictions imposed by the Barro and Gordon (1983) model of dynamic time inconsistency on a bivariate time-series model of Consumer Price Index (CPI) inflation and real Gross Domestic Product (GDP), and tests these restrictions based on quarterly data for South Africa covering the period of 1960:01 through 1999:04, i.e., for the pre-inflation targeting period. The results show that the data are consistent with the short- and long-run implications of the theory of time-consistent monetary policy. Moreover, when the model is used to forecast one-step-ahead inflation over the period of 2001:01 to 2008:02, i.e., the period covering the starting point of the inflation targeting regime till date we, on average, obtain lower rates of inflation. The result tends to suggest that the South African Reserve Bank (SARB), perhaps needs to manage the inflation targeting framework better than it has done so far. |
| Keywords: | Dynamic Time Inconsistency; Inflation Targeting; One-Step-Ahead Forecasts |
| JEL: | E31 E52 E61 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200833&r=cba |
| By: | Olcay Çulha; Ali Çulha; Rauf Gönenç |
| Abstract: | Monetary policy has been one of the main pillars of the post-2001 stabilisation programme. Encouraged by its success, the central bank shifted from implicit to explicit inflation targeting in 2006 and set a medium-term inflation target of 4%, applicable from end 2007. However this objective faced with two important challenges. On the one hand, inflation inertia settled in and non-tradable inflation stagnated at more than 10%, further fuelled by persistent surge in global commodity and energy prices. On the other hand, real interest rates remained high, continuing to fuel strong capital inflows and currency appreciation, and undermining the competitiveness of labour-intensive segments of the economy. Turkey is, therefore, faced with the classic dilemma of successful catching-up economies: Inflation inertia requires a tight policy while competitiveness losses appear to go beyond the absorption and adaptation capacity of large segments of the economy. This chapter argues that resolving this issue requires monetary policy to be supported by broader policies, including proactive competition policy to reduce costs and prices in services, enforcement of a credible multi-yearly spending framework to consolidate confidence in fiscal stability, and employers' and employees' commitment to anchor prices and wages more on the inflation target. Success with such policies would help shift the burden away from the central bank's interest rate as the only available instrument to increase the credibility of the inflation target. <P>Les défis de politique monétaire en Turquie <BR>La politique monétaire est l'un des principaux piliers du programme de stabilisation engagé après 2001. Encouragée par ce succès, la banque centrale est passée en 2006 d'un ciblage implicite de l'inflation à un ciblage explicite, et a fixé un objectif d'inflation à moyen terme de 4%, applicable à compter de la fin de 2007. Toutefois, cet objectif s'est rapidement heurté à deux principaux écueils. D'une part, l'inertie de l'inflation a perduré et l'inflation dans les « non-tradables» a stagné à plus de 10 %. D'autre part, les taux d'intérêt réels sont restés élevés, ce qui a alimenté des entrées massives de capitaux et fait s'apprécier la monnaie, ce qui a pénalisé la compétitivité des segments de l'économie à forte intensité de main-d'œuvre. La Turquie est par conséquent confrontée au dilemme classique que connaissent les économies performantes en phase de rattrapage. L'inertie de l'inflation exige une politique monétaire restrictive, mais les pertes de compétitivité dépassent apparemment les capacités d'absorption et d'adaptation de pans entiers de l'économie. Ce document fait valoir que la politique monétaire doit être étayée par des initiatives menées dans d'autres domaines : incluant la politique de la concurrence proactive visant à réduire les coûts et les prix des services, la mise en œuvre d'un cadre de dépenses pluriannuel crédible afin de raffermir la confiance dans la stabilité budgétaire, et l’adoption par les employeurs et les salariés de l'objectif d'inflation comme point d'ancrage de leurs stratégies en matière de tarification et de salaires. La réussite de ces politiques atténuerait le poids qui s'exerce sur le taux d'intérêt directeur de la banque centrale en tant qu'instrument unique pour asseoir la crédibilité de l'objectif d'inflation. |
| Keywords: | exchange rates, taux de change, monetary policy, politique monétaire, inflation target, Turkey, Turquie, inflation expectation, anticipation d'inflation |
| JEL: | E40 E42 E50 E52 E58 |
| Date: | 2008–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:646-en&r=cba |