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on Central Banking |
| By: | Maurice Obstfeld; Jay C. Shambaugh; Alan M. Taylor |
| Abstract: | In this paper we connect the events of the last twelve months, "The Panic of 2008" as it has been called, to the demand for international reserves. In previous work, we have shown that international reserve demand can be rationalized by a central bank's desire to backstop the broad money supply to avert the possibility of an internal/external double drain (a bank run combined with capital flight). Thus, simply looking at trade or short-term debt as motivations for reserve holdings is insufficient; one must also consider the size of the banking system (M2). Here, we show that a country's reserve holdings just before the current crisis, relative to their predicted holdings based on these financial motives, can significantly predict exchange rate movements of both emerging and advanced countries in 2008. Countries with large war chests did not depreciate -- and some appreciated. Meanwhile, those who held insufficient reserves based on our metric were likely to depreciate. Current account balances and short-term debt levels are not statistically significant predictors of depreciation once reserve levels are taken into account. Our model's typically high predicted reserve levels provide important context for the unprecedented U.S. dollar swap lines recently provided to many countries by the Federal Reserve. |
| JEL: | E42 E44 E58 F21 F31 F33 F36 F41 F42 O24 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14826&r=cba |
| By: | Philip Arestis; Elias Karakitsos |
| Abstract: | Central banks have an aversion to bailing out speculators when asset bubbles burst, but ultimately, as custodians of the financial system, they have to do exactly that. Their actions are justified by the goal of protecting the economy from the bursting of bubbles; while their intention may be different, the result is the same: speculators, careless investors, and banks are bailed out. The authors of this new Policy Note say that a far better approach is for central banks to widen their scope and target the net wealth of the personal sector. Using interest rates in both the upswing and the downswing of a (business) cycle would avoid moral hazard. A net wealth target would not impede the free functioning of the financial system, as it deals with the economic consequences of the rise and fall of asset prices rather than with asset prices (equities or houses) per se. It would also help to control liquidity and avoid future crises. The current crisis has its roots in the excessive liquidity that, beginning in the mid 1990s, financed a series of asset bubbles. This liquidity was the outcome of “bad” financial engineering that spilled over to other banks and to the personal sector through securitization, in conjunction with overly accommodating monetary policy. Hence, targeting net wealth would also help control liquidity, the authors say, without interfering with the financial engineering of banks. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:09-2&r=cba |
| By: | Charles Goodhart; Miguel Segoviano |
| Abstract: | The recent crisis underlined that proper estimation of distress-dependence amongst banks in a global system is essential for financial stability assessment. We present a set of banking stability measures embedding banks’ linear (correlation) and nonlinear distress-dependence, and their changes through the economic cycle, thereby allowing analysis of stability from three complementary perspectives: common distress in the system, distress between specific banks, and cascade effects associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers its multivariate density from which the proposed measures are estimated. These can be provided for developed and developing countries. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp627&r=cba |
| By: | Hans Gersbach (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland); Volker Hahn (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland) |
| Abstract: | In this paper, we argue for a regulatory framework under which a bank’s required level of equity capital depends on the equity capital of its peers. Such bankingon- the-average rules are transparent and could also be combined with the current regulatory framework. In addition, we argue that banking-on-the-average rules ensure the build-up of bank equity capitals in booms and thus avoid excessive leverage. Prudent banks can impose prudency on other banks. In a simple model of a banking system, we show that a banking-on-the-average framework can deliver the socially optimal solution because it induces banks to abstain from gambling. Moreover, it alleviates socially harmful consequences of conventional equity-capital rules, which may induce banks to excessively cut back on lending or liquidate desirable long-term investment projects in downturns. |
| Keywords: | banking on the average, equity-capital requirements, banking system, banking crisis |
| JEL: | G21 G28 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:09-107&r=cba |
| By: | Roger E.A. Farmer |
| Abstract: | This paper argues that the equilibrium business cycle theory which has guided macroeconomics for the past thirty years is flawed. I introduce an alternative paradigm that retains the main message of Keynes' General Theory and which reconciles that message with Walrasian economics. I argue that there are two market failures in the labor market: A lemons problem and an externality. I show how those two problems lead to inefficient equilibria in which the unemployment rate is determined by the self-fulfilling beliefs of stock market participants. |
| JEL: | E0 E12 E32 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14846&r=cba |
| By: | Alan Blinder |
| Abstract: | Central banks, which used to be so secretive, are communicating more and more these days about their monetary policy. This development has proceeded hand in glove with a burgeoning new scholarly literature on the subject. The empirical evidence, reviewed selectively here, suggests that communication can move financial markets, enhance the predictability of monetary policy decisions, and perhaps even help central banks achieve their goals. A number of theoretical drawbacks to greater communication are also reviewed here. None seems very important in practice. That said, no consensus has yet emerged regarding what constitutes "optimal" communication strategy - either in quantity or nature. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Benjamin M Friedman and YV Reddy. |
| Keywords: | Central Bank Communication, Monetary Policy Transparency |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:274&r=cba |
| By: | Otmar Issing |
| Abstract: | The mid-1980s began a period that might, in retrospect, be seen as the golden age of monetary policy. Worldwide inflation rates, which had come down from the high levels reached in the 1970s, were at the lowest level seen in a long time. In the real economy, low and stable inflation went along with growth - at first, reasonable, and later, remarkable - and with reduced volatility. The term Goldilocks is sometimes used to describe this solid, sustainable situation - meaning that, like the porridge in the fairy tale, it was neither too hot nor too cold but just right. A number of fortunate circumstances contributed to the Goldilocks economy. Deregulation and globalisation, with their impact on competition and pricing power in goods and labour markets, are sometimes seen as major factors supporting the achievement and maintenance of low inflation (Rogoff (2003)). With the weakening of deregulation and globalisation, will we see the end of the golden age, which then will turn out to have been only a short episode? On the one hand, an end to the golden age would be no surprise for those who have stressed from the outset that its highly positive macroeconomic outcomes were the result, if not of luck, then of benign circumstances whose combination could not be expected to last forever (Sims and Zha (2006)). And do not recent developments already confirm this sceptical assessment of the role of central banks and monetary policy during this period? Isn't inflation rising? Doesn't the ongoing turbulence in financial markets indicate that central banks did not - or, rather, could not - prevent such developments? On the other hand, have we not seen the emergence of a policy regime that should be robust enough to continue the period of monetary stability? And would not a regime of monetary stability contribute to the stability of the real economy? We might only ex post be able to give a definite answer to these questions. For the time being, we can just study the emergence of the current policy regime and its elements via the practice of central banking and the results of research. I would like to start with a personal note. It would be, to say the least, overambitious to survey in just a few pages roughly three decades of research on monetary policy. The same is true for the analysis of monetary policymaking during this period. What I have tried to do is simply provide the reflections of someone who, coming from academia, played a special role in two central banks - the Bundesbank (from 1990 to 1998) and the European Central Bank (from 1998 to 2006) - under extremely difficult circumstances, namely the aftermath of German reunification in 1990 and the launch of the European Union two years later. It was a challenge and a privilege to build the bridge between monetary policy research and monetary policymaking in those two central banks. What were the most relevant aspects of theory to be considered when deciding on monetary policy? How did it work in practice? I will start with some results of monetary policy and the advances in research that, to a large degree, were triggered by those results. The later sections analyse the principles guiding the conduct of monetary policy by the Bundesbank and the ECB and some specific aspects of monetary policy. One of the main lessons I got during my 16 years of central banking practice is that it is critical to raise questions and not ignore important insights - even if the dominant approaches in research seem to suggest otherwise. It should therefore not come as a surprise that the paper ends with open questions. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Allan H Meltzer. |
| Keywords: | Cross-Shareholding; European Monetary Union, Monetary Policy Strategy |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:273&r=cba |
| By: | Charles Engel |
| Abstract: | This paper examines optimal monetary policy in an open-economy two-country model with sticky prices. We show that currency misalignments are inefficient and lower world welfare. We find that optimal policy must target not only inflation and the output gap, but also the currency misalignment. However the interest rate reaction function that supports this targeting rule may involve only the CPI inflation rate. This result illustrates how examination of "instrument rules" may hide important trade-offs facing policymakers that are incorporated in "targeting rules". The model is a modified version of Clarida, Gali, and Gertler's (JME, 2002). The key change is that we allow pricing to market or local-currency pricing and consider the policy implications of currency misalignments. Besides highlighting the importance of the currency misalignment, our model also gives a rationale for targeting CPI, rather than PPI, inflation. |
| JEL: | E52 F41 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14829&r=cba |
| By: | Charles Engel (University of Wisconsin) |
| Abstract: | This paper examines optimal monetary policy in an open-economy two-country model with sticky prices. Currency misalignments are shown to be inefficient and lower world welfare. Also, optimal policy must target not only inflation and the output gap, but also the currency misalignment. However, the interest rate reaction function that supports this targeting rule involves only the CPI inflation rate. This result illustrates how examination of ‘instrument rules’ may hide important trade-offs facing policy-makers that are incorporated in ‘targeting rules’. The model is a modified version of Clarida, Galí and Gertler’s (2002). The key change is to allow pricing to market or local-currency pricing and consider the policy implications of currency misalignments. Besides highlighting the importance of the currency misalignment, this model also gives a rationale for targeting CPI inflation, rather than producer price inflation as in Clarida, Galí and Gertler. |
| Keywords: | local currency pricing; pricing to market; targeting rule; instrument rule; optimal monetary policy |
| JEL: | E52 F41 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2009-01&r=cba |
| By: | Maurice Obstfeld |
| Abstract: | This paper explores the links between macroeconomic developments, especially monetary policy, and the exchange rate during the period of Japan's bubble economy and subsequent stagnation. The yen experienced epic gyrations over that period, starting with its rapid ascent after the March 1985 Plaza Accord of major industrial countries. Two distinct periods of endaka fukyo, or recession induced by a strong yen, occurred in the late 1980s and the early 1990s at critical phases of the monetary policy cycle. My approach emphasizes the interaction of short-term developments driven by monetary factors (as they affect international real interest rate differentials) and the long-term determinants of the real exchange rate's equilibrium path. Chief among those long-run determinants are relative sectoral productivity levels and the terms of trade, including the price of oil. Since the mid-1990s, the yen's real exchange rate has generally followed a depreciating trend and Japan's comprehensive terms of trade have deteriorated. |
| JEL: | F14 F41 F42 F51 N15 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14816&r=cba |
| By: | John B. Taylor; Volker Wieland |
| Abstract: | In this paper we investigate the comparative properties of empirically-estimated monetary models of the U.S. economy. We make use of a new data base of models designed for such investigations. We focus on three representative models: the Christiano, Eichenbaum, Evans (2005) model, the Smets and Wouters (2007) model, and the Taylor (1993a) model. Although the three models differ in terms of structure, estimation method, sample period, and data vintage, we find surprisingly similar economic impacts of unanticipated changes in the federal funds rate. However, the optimal monetary policy responses to other sources of economic fluctuations are widely different in the different models. We show that simple optimal policy rules that respond to the growth rate of output and smooth the interest rate are not robust. In contrast, policy rules with no interest rate smoothing and no response to the growth rate, as distinct from the level, of output are more robust. Robustness can be improved further by optimizing rules with respect to the average loss across the three models. |
| JEL: | C52 E30 E52 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14849&r=cba |
| By: | Vasco Cúrdia; Michael Woodford |
| Abstract: | We extend the basic (representative-household) New Keynesian [NK] model of the monetary transmission mechanism to allow for a spread between the interest rate available to savers and borrowers, that can vary for either exogenous or endogenous reasons. We find that the mere existence of a positive average spread makes little quantitative difference for the predicted effects of particular policies. Variation in spreads over time is of greater significance, with consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation. Nonetheless, we find that the target criterion - a linear relation that should be maintained between the inflation rate and changes in the output gap - that characterises optimal policy in the basic NK model continues to provide a good approximation to optimal policy, even in the presence of variations in credit spreads. We also consider a "spread-adjusted Taylor rule", in which the intercept of the Taylor rule is adjusted in proportion to changes in credit spreads. We show that while such an adjustment can improve upon an unadjusted Taylor rule, the optimal degree of adjustment is less than 100 percent; and even with the correct size of adjustment, such a rule of thumb remains inferior to the targeting rule. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Olivier Blanchard and Charles Goodhart. |
| Keywords: | Financial Frictions, Interest Rate Spreads |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:278&r=cba |
| By: | Laurence M. Ball |
| Abstract: | This paper argues that hysteresis helps explain the long-run behavior of unemployment. The natural rate of unemployment is influenced by the path of actual unemployment, and hence by shifts in aggregate demand. I review past evidence for hysteresis effects and present new evidence for 20 developed countries. A central finding is that large increases in the natural rate are associated with disinflations, and large decreases with run-ups in inflation. These facts are consistent with hysteresis theories and inconsistent with theories in which the natural rate is independent of aggregate demand. |
| JEL: | E24 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14818&r=cba |
| By: | Susanto Basu; John G. Fernald |
| Abstract: | Potential output is an important concept in economics. Policymakers often use a one-sector neoclassical model to think about long-run growth, and often assume that potential output is a smooth series in the short run--approximated by a medium- or long-run estimate. But in both the short and long run, the one-sector model falls short empirically, reflecting the importance of rapid technical change in producing investment goods; and few, if any, modern macroeconomic models would imply that, at business cycle frequencies, potential output is a smooth series. Discussing these points allows us to discuss a range of other issues that are less well understood, and where further research could be valuable. |
| Keywords: | Input-output analysis ; Productivity ; Monetary policy CL HG2567 S3A5 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2009-05&r=cba |
| By: | Zheng Liu; Daniel F. Waggoner; Tao Zha |
| Abstract: | We study the sources of the Great Moderation by estimating a variety of medium-scale dynamic stochastic general equilibrium (DSGE) models that incorporate regime switches in shock variances and the inflation target. The best-fit model—the one with two regimes in shock variances—gives quantitatively different dynamics compared with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that changes in the inflation target or shocks in the investment-specific technology played little role in macroeconomic volatility. Moreover, our estimates indicate considerably fewer nominal rigidities than the literature suggests. incompl s |
| Keywords: | regime-switching DSGE, shock variances, inflation target, nominal rigidities, intertemporal capital accumulation shocks, model comparison CL HG2567 A4A5 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2009-03&r=cba |
| By: | Pauline Barrieu; Bernard Sinclair-Desgagné |
| Abstract: | This paper proposes a general way to craft public policy when there is no consensual account of the situation of interest. The design builds on a dual extension of the traditional theory of economic policy. It does not require a representative policymaker’s utility function (as in the literature on ambiguity), a reference model (as in robust control theory) or some prior probability distribution over the set of supplied scenarios (as in the Bayesian model-averaging approach). The obtained policies are shown to be robust and simple in a precise and intuitive sense. <P>Ce texte propose une nouvelle approche du design des politiques publiques, quand il n'y pas de consensus entre experts sur une représentation adéquate de la situation. Techniquement parlant, nous adoptons pour ce faire une version généralisée de la théorie traditionnelle de la politique économique, telle que développée il y a plusieurs décennies par Jan Tinbergen. Contrairement aux solutions existantes à l'incertitude sur les modèles, notre approche ne demande pas de connaître la fonction d'utilité des décideurs politiques (à l'inverse de la littérature sur l'ambigüité), ni d'avoir un modèle de référence (par contraste avec la théorie du contrôle robuste), ni de posséder une distribution de probabilité sur l'ensemble des scénarios proposés (a contrario de l'approche bayesienne). Nous montrons que les politiques obtenues possèdent plusieurs propriétés que la littérature souvent postule a priori, comme la robustesse et la simplicité. |
| Keywords: | Model uncertainty, Theory of economic policy, Ambiguity, Robustness, Incertitude sur les modèles, théorie de la politique économique, ambigüité, robustesse |
| JEL: | D80 E61 C60 |
| Date: | 2009–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2009s-03&r=cba |
| By: | Christophe Hachon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | Although the crisis of the Welfare State has been evoked for quite a long time, figures show that such a phenomenon has arisen only recently. Furthermore, it is not a common feature in all developed countries. This paper aims at explaining these two empirical facts. We use an overlapping generations model in which agents decide to educate themselves or not endogenously. Furthermore, at each date, the working population vote on the size of a redistributive policy. Firstly, we show that the share of the educated population can be the engine of the crisis of the Welfare State. Moreover, our paper emphasizes that the expectations of agents about the size of redistributive policies, can explain the timing differential in the crisis of the Welfare State between developed countries. |
| Keywords: | Welfare State ; Indeterminacy ; Education ; Redistribution |
| Date: | 2009–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00371205_v1&r=cba |
| By: | BERNAL DIAZ, Oscar; OOSTERLINCK, Kim; SZAFARZ, Ariane |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ecoulb:info:hdl:2013/13554&r=cba |
| By: | Aidan Corcoran |
| Abstract: | This paper tests a novel explanation for excess returns to the carry trade, namely, that investors are rewarded for exposure to equity risk of the target country. This risk factor is motivated via a hedging argument, whereby investors reallocate portfolio holdings to government debt in response to an increase in equity risk. Data from 1952 to 2007 on a broad sample of countries are used to test this hypothesis in an asset pricing framework which controls for global equity returns, exchange rate volatility, and global consumption factors. Target currency equity returns are found to be a priced risk factor after controlling for these factors. Implications for the diversication of international portfolio risk are discussed. |
| Date: | 2009–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp287&r=cba |
| By: | Ronald McKinnon; Gunther Schnabl |
| Abstract: | China's financial conundrum arises from two sources: (1) its large trade (saving) surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead foreign currency claims (largely dollars) build up within domestic financial institutions. And (2), economists - both American and Chinese - mistakenly attribute the surpluses to an undervalued renminbi. To placate the United States, the result is a gradual appreciation of the renminbi against the dollar of 6 percent or more per year. This predictable appreciation since 2004, and the fall in US interest rates since mid 2007, not only attracts hot money inflows but inhibits private capital outflows from financing (compensating?) China's huge trade surplus. This one-way bet in the foreign exchange markets can no longer be offset by relatively low interest rates in China compared to the United States, as had been the case in 2005-06. Thus, the People's Bank of China (PBC) now must intervene heavily to prevent the renminbi from ratcheting upwards - and so becomes the country's sole international financial intermediary. Despite massive efforts by the PBC to sterilise the monetary consequences of the reserve buildup, inflation in China is increasing, with excess liquidity that spills over into the world economy. China has been transformed from a deflationary force on American and European price levels into an inflationary one. Because of the currency mismatch, floating the RMB is neither feasible nor desirable - and a higher RMB would not reduce China's trade surplus. Instead, monetary control and normal private-sector finance for the trade surplus require a return to a credibly fixed nominal yuan/dollar rate similar to that which existed between 1995 and 2004. But for any newly reset yuan/dollar rate to be credible as a monetary anchor, foreign "China bashing" to get the RMB up must end. Currency stabilisation would allow the PBC to regain monetary control and quash inflation. Only then can the Chinese government take decisive steps to reduce the trade (saving) surplus by tax cuts, increased social expenditures, and higher dividend payouts. But as long as the economy remains overheated, the government hesitates to take these trade-surplus-reducing measures because of their near-term inflationary consequences. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Michael Mussa. |
| Keywords: | Global Imbalances, Chinese Exchange Rate Regime |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:277&r=cba |
| By: | Eran Hanany; Peter Klibanoff |
| Abstract: | Dynamic consistency leads to Bayesian updating under expected utility. We ask what it implies for the updating of more general preferences. In this paper, we charac- terize dynamically consistent update rules for preference models satisfying ambiguity aversion. This characterization extends to regret-based models as well. As an appli- cation of our general result, we characterize dynamically consistent updating for two important models of ambiguity averse preferences: the ambiguity averse smooth am- biguity preferences (Klibanoff, Marinacci and Mukerji [Econometrica 73 2005, pp. 1849-1892]) and the variational preferences (Maccheroni, Marinacci and Rustichini [Econometrica 74 2006, pp. 1447-1498]). The latter includes max-min expected utility (Gilboa and Schmeidler [Journal of Mathematical Economics 18 1989, pp. 141-153]) and the multiplier preferences of Hansen and Sargent [American Economic Review 91(2) 2001, pp. 60-66] as special cases. For smooth ambiguity preferences, we also identify a simple rule that is shown to be the unique dynamically consistent rule among a large class of rules that may be expressed as reweightings of Bayes's rule. |
| Keywords: | Updating, Dynamic Consistency, Ambiguity, Regret, Ellsberg, Bayesian, Consequentialism, Smooth Ambiguity |
| JEL: | D81 D83 D91 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1468&r=cba |
| By: | Kai Christoffel; James Costain; Gregory de Walque; Keith Kuester; Tobias Linzert; Stephen Millard; Olivier Pierrard |
| Abstract: | This paper reviews recent approaches to modeling the labour market and assesses their implications for inflation dynamics through both their effect on marginal cost and on price-setting behavior. In a search and matching environment, we consider the following modeling setups: right-to-manage bargaining vs. efficient bargaining, wage stickiness in new and existing matches, interactions at the firm level between price and wage-setting, alternative forms of hiring frictions, search on-the-job and endogenous job separation. We find that most specifications imply too little real rigidity and, so, too volatile inflation. Models with wage stickiness and right-to-manage bargaining or with firm-specific labour emerge as the most promising candidates. |
| Keywords: | Labor market ; Business cycles; Inflation Dynamics, Labour Market, Business Cycle, Real Rigidities. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:09-6&r=cba |
| By: | Alberto F. Alesina; Paola Giuliano |
| Abstract: | This paper discusses what determines the preferences of individuals for redistribution. We review the theoretical literature and provide a framework to incorporate various effects previously studied separately in the literature. We then examine empirical evidence for the US, using the General Social Survey, and for a large set of countries, using the World Values Survey. The paper reviews previously found results and provides several new ones. We emphasize, in particular, the role of historical experiences, cultural factors and personal history as determinants of preferences for equality or tolerance for inequality. |
| JEL: | I38 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14825&r=cba |
| By: | Li Qin; Moïse SIDIROPOULOS; Eleftherios Spyromitros |
| Abstract: | This paper examines the relationship between the preference for ro- bustness of central bank (when it fears that its model is misspecified), the inflation persistence and the output cost of disinflation. Using a simple monetary game model in which higher preference for robustness of central bank is positively associated with the inflation persistence and thus nega- tively with the speed of disinflation, this paper shows that the output cost of disinflation is higher when the less the central bank believes that its reference model is robust. |
| Keywords: | Model uncertainty, Robust control, Minmax policies, Inflation persistence, Sacrifice ratio. |
| JEL: | E50 E52 E58 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2009-09&r=cba |
| By: | Sofia Bauducco; Ales Bulir; Martin Cihak |
| Abstract: | To provide a rigorous analysis of monetary policy in the face of financial instability, we extend the standard dynamic stochastic general equilibrium model to include a financial system. Our simulations suggest that if financial instability affects output and inflation with a lag, and if the central bank has privileged information about credit risk, monetary policy responding instantly to increased credit risk can trade off more output and inflation instability today for a faster return to the trend than a policy that follows the simple Taylor rule. This augmented rule leads in some parameterizations to improved outcomes in terms of long-term welfare, however, the welfare impacts of such a rule appear to be negligible. |
| Keywords: | DSGE models, financial instability, monetary policy rule. |
| JEL: | E52 E58 G21 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2008/8&r=cba |
| By: | Kai Carstensen; Oliver Hülsewig; Timo Wollmershäuser |
| Abstract: | This paper explores the importance of housing and mortgage market heterogeneity in 13 European countries for the transmission of monetary policy. We use a pooled VAR model which is estimated over the period 1995-2006 to generate impulse responses of key macroeconomic variables to a monetary policy shock. We split our sample of countries into two disjoint groups according to the impact of the monetary policy shock on real house prices. Our results suggest that in countries with a more pronounced reaction of real house prices the propagation of monetary policy shocks to macroeconomic variables is amplified. |
| Keywords: | Pooled VAR model, house prices, monetary policy transmission, country clusters, sign restrictions |
| JEL: | C32 C33 E52 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwfin:diwfin7040&r=cba |
| By: | Michele Berardi |
| Abstract: | In his monograph The conquest of American inflation (1999) Sargent suggests that the sharp reduction in US inflation that took place under Volker may vindicate the type of econometric policy evaluation famously criticized by Lucas (1976). At the core of this vindication strory are the escape dynamics, recurrent sliding away from the path leading to the time-consistent sub-optimal equilibrium level of inflation. We try to understand here under which conditions this phenomenon arises. In particular, we note that economists, and consequently policymakers, knew long before the Lucas critique that in order to do policy analysis structural models were required. We thus endow our policymaker with a correctly specified model, one that takes explicitly into account the role of expectations. Using such a model, together with a policy that takes expectations as given, the escape dynamics do not appear. But they reappear when long run considerations of policy effects enter into the picture. We thus conclude that what really matters is the way in which the policymaker designs its policy, rather than the econometric specification of the model he uses. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:117&r=cba |
| By: | Ravi Bansal; Ivan Shaliastovich |
| Abstract: | We develop a general equilibrium model in which income and dividends are smooth, but asset prices are subject to large moves (jumps). A prominent feature of the model is that the optimal decision of investors to learn the unobserved state triggers large asset-price jumps. We show that the learning choice is critically determined by preference parameters and the conditional volatility of income process. An important prediction of the model is that income volatility predicts future jumps, while the variation in the level of income does not. We find that indeed in the data large moves in returns are predicted by consumption volatility, but not by the changes in the consumption level. We show that the model can quantitatively capture these novel features of the data. |
| JEL: | E0 E4 E44 G0 G1 G12 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14814&r=cba |
| By: | V. LEWIS; A. MARKIEWICZ |
| Abstract: | Rational expectations models fail to explain the disconnect between the ex-change rate and macroeconomic fundamentals. In line with survey evidence on the behaviour of foreign exchange traders, we introduce model misspecification and learning into a standard monetary model. Agents use simple forecasting rules based on a restricted information set. They learn about the parameters and performance of different models and can switch between forecasting rules. We compute the implied US-UK post-Bretton Woods exchange rate under learning. While the excess volatility of the exchange rate return can be reproduced with low values of the learning gain, the implied correlations with the fundamentals are higher than in the data |
| Keywords: | exchange rate, disconnect, misspecification, learning |
| JEL: | F31 E37 E44 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:09/563&r=cba |
| By: | Francesco Lippi (University of Sassari, EIEF and CEPR); Andrea Nobili (Bank of Italy) |
| Abstract: | We consider an economy in which the oil costs, industrial production, and other macroeconomic variables fluctuate in response to fundamental domestic and external demand and supply shocks. We estimate the effects of these structural shocks on US monthly data for the 1973.1-2007.12 period using robust sign restrictions suggested by theory. The interplay between the oil market and the US economy goes in both directions. About 20% of changes in the cost of oil come in response to US aggregate demand shocks, while shocks originating in the oil market also affect the US economy, the impact depending on the nature of the shock: a negative oil supply shock reduces US output, whereas a positive oil demand shock has a positive and persistent effect on GDP. |
| Keywords: | Business cycle; Oil prices; Structural VAR |
| JEL: | C32 E3 F4 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_704_09&r=cba |
| By: | Roger E.A. Farmer; Daniel F. Waggoner; Tao Zha |
| Abstract: | We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models, and we develop an algorithm to check these conditions in practice. We use three examples, based on the new Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov switching with forward-looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate region and an indeterminate region. . incompl s |
| Keywords: | stability, nonlinearity, unique equilibrium, cross-regime indeterminacy, expectations formation, necessary and sufficient conditions CL HG2567 A4A5 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2009-05&r=cba |
| By: | W. Scott Frame; Lawrence J. White |
| Abstract: | This paper discusses the technological change and financial innovation that commercial banking has experienced during the past twenty-five years. The paper first describes the role of the financial system in economies and how technological change and financial innovation can improve social welfare. We then survey the literature relating to several specific financial innovations, which we define as new products or services, production processes, or organizational forms. We find that the past quarter century has been a period of substantial change in terms of banking products, services, and production technologies. Moreover, while much effort has been devoted to understanding the characteristics of users and adopters of financial innovations and the attendant welfare implications, we still know little about how and why financial innovations are initially developed. incompl s |
| Keywords: | technological change, financial innovation, banking CL HG2567 A4A5 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2009-10&r=cba |
| By: | Adam Ashcraft; Morten L. Bech; W. Scott Frame |
| Abstract: | The Federal Home Loan Bank (FHLB) System is a large, complex, and understudied government-sponsored liquidity facility that currently has more than $1 trillion in secured loans outstanding, mostly to commercial banks and thrifts. This paper first documents the significant role played by the FHLB System at the outset of the ongoing financial crisis and then provides evidence about the uses of these funds by their bank and thrift members. We then identify the trade-offs faced by FHLB member-borrowers when choosing between accessing the FHLB System or the Federal Reserve's discount window during the crisis. We conclude by describing the fragmented U.S. lender-of-last-resort framework and finding that additional clarity about the respective roles of the various liquidity facilities would be helpful. incompl s |
| Keywords: | government-sponsored enterprise, lender of last resort, liquidity CL HG2567 A4A5 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2009-04&r=cba |
| By: | Bleuel, Hans-H. (Department of Economics of the Duesseldorf University of Applied Sciences) |
| Abstract: | Germany’s banking sector has been severely hit by the global financial crisis. In a German context as of February, 2009, this paper reviews briefly the structure of the banking industry, quantifies effects of the crisis on banks and surveys responses of economic policy. It is argued that policy design needs to enhance transparency and enforce the liability principle. In addition, economic policy should not eclipse principles of competition policy. |
| Keywords: | bank, banking crisis, financial crisis, economic policy, germany |
| JEL: | E52 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ddf:wpaper:fobe08&r=cba |
| By: | Nikolaj Schmidt |
| Abstract: | Motivated by the credit crisis 2007-08, this paper presents a theory of ¶capital market banks¶; banks that use derivative programs to exploit ine¢ ciencies in the capital markets. I model banks. use of asset backed commercial paper (ABCP) programs as a local game, and analyse how these programs affect financial stability. In a financial market where banks are subject to costly capital requirements and investors are heterogeneous, the ABCP program arises endogenously in response to inefficient risk sharing. The sustainability of the ABCP program depends crucially on the sponsoring bank's capital. Small shocks to the bank's capital can lead to a failure of the ABCP program. This amplifies the shock and pushes the the bank into bankruptcy. I link the dynamics of the ABCP market to the interbank market, and argue that an unravelling of the ABCP market can cause a seizure of the interbank market. The model indicates, that traditional monetary policy is unable to alleviate seizures of the interbank market, but that targeted liquidity measures, such as the ¶Term Securities Lending Facility¶, the ¶Term Auction Facility¶, the ¶Troubled Asset Relief Program¶, the ¶Money Market ABCP Program¶ and the launch of a ¶super fund¶, could end the unravelling of the ABCP market and ease the pressures in the interbank market. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp625&r=cba |
| By: | W. Erwin Diewert; Alice O. Nakamura |
| Abstract: | In this paper, we take stock of how statistical agencies in different nations are currently accounting for housing in their consumer price indexes (CPIs). The rental equivalence and user cost approaches have been favourites of economists. Both can be derived from the fundamental equation of capital theory. Concerns about these approaches are taken up. We go on to argue that an opportunity cost approach is the correct theoretical framework for accounting for owner-occupied housing (OOH) in a CPI. This approach, first mentioned in a 2006 OECD paper by Diewert, is developed more fully here. We explore the relationship of this new approach to the usual rental equivalency and user cost approaches. The new approach leads to an owner-occupied housing opportunity cost (OOHOC) index that is a weighted average of the rental and the financial opportunity costs. ; We call attention to the need for more direct measures of inflation for owner-occupied housing services. In a 2007 paper, Mishkin argues that central banks with supervisory authority can reduce the likelihood of bubbles forming through prudential supervision of the financial system. However, the official mandates of central banks typically focus on managing measured inflation. Barack Obama has pledged to give the Federal Reserve greater oversight of a broader array of financial institutions. We believe that an important addition to this pledge should be to give the BLS, BEA, and Census Bureau the funds and the mandate to aggressively develop improved measures of inflation for owner-occupied housing services. Central banks and national governments have many policy instruments at their disposal that they could use, in the future, to control inflation in housing markets. What they lack are appropriate measures of inflation in the market for owner-occupied housing services. The proposed new opportunity cost measure for accounting for OOH in a CPI will not be simple or cheap to implement. However, the current financial crisis makes it clear that the costs of not having an adequate measure for inflation in the cost of owner-occupied housing services can be far greater. |
| Keywords: | Durable goods, Consumer ; Consumer price indexes ; Cost of living adjustments ; Housing; Durable goods, Consumer Price Index, Cost of Living Index, Owner Occupied Housing, depreciation, hedonic regression models, rental equivalence approach, acquisitions approach, user cost approach, payments, approach, maintenance and repair, renovations expenditures |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:09-4&r=cba |
| By: | Giuseppe Ciccarone; Enrico Marchetti |
| Abstract: | The aim of this paper is to bring together two recent developments in the ”contracting” approach to the time-inconsistency problem of monetary policy: linear contracts under common agency and central bank preference uncertainty under single agency. We show that under common agency and imperfect ”political” transparencey, the full transparency finding that the interest group contract dominates the government’s one is confirmed, but equilibrium expected inflation is lower, as the new source of uncertainty makes the two principals more cautious in their instrument setting. This reduces the average inflation bias. We then extend the analysis to the case of uncertainty on the central bank output target and show that the expected values of inflation and output are the same as those obtained under perfect ”economic” transparency, whereas the actual values are different only for the presence of an additive term depending on opacity. Finally, we demonstrate that when the principals are uncertain about the weight attached by the central banker to the incentive scheme the equilibrium inflation surprise may be negative and output may be lower than the natural rate. |
| Keywords: | Central bank transparency, Inflation, uncertainty. |
| JEL: | E58 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:115&r=cba |
| By: | Pierpaolo Benigno |
| Abstract: | A simple New-Keynesian model is set out with AS-AD graphical analysis. The model is consistent with modern central banking, which targets short-term nominal interest rates instead of money supply aggregates. This simple framework enables us to analyze the economic impact of productivity or mark-up disturbances and to study alternative monetary and fiscal policies. The impact of the fiscal multipliers on output and the output gap can be quantified showing that a short-run increase in public spending has a multiplier less than one on output and a much smaller multiplier on the output gap, while a decrease in short-run taxes has a positive multiplier on output, but negative on the output gap. In the AS-AD graphical view, optimal policy simplifies to nothing more than an additional line, IT, along which the trade-off between the objective of price stability and that of stabilizing the output gap can be optimally exploited. The framework is also suitable for studying a liquidity-trap environment and possible solutions. |
| JEL: | E0 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14824&r=cba |
| By: | Joseph E. Gagnon |
| Abstract: | Sharp exchange rate depreciations, or currency crashes, are associated with poor economic outcomes in industrial countries only when they are caused by inflationary macroeconomic policies. Moreover, the poor outcomes are attributable to inflationary policies in general and not the currency crashes in particular. On the other hand, crashes caused by rising unemployment or external deficits have always had good economic consequences with stable or falling inflation rates. |
| Keywords: | Foreign exchange rates; Exchange rate, depreciation, inflation, unemployment, current account CL HG136 A54 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:966&r=cba |
| By: | Aristovnik, Aleksander; Čeč, Tanja |
| Abstract: | Using a critical analysis of the acquired data, this article mainly aims to present the currency composition of the foreign currency reserves of central banks in selected countries in the 1999-2007 period and, on this basis, to establish whether the euro stands any real chances of dethroning the US dollar as the global currency. Among other things, the empirical results, for the most part overlapping with the theoretical and empirical expectations, confirm the hypothesis that in the near future the euro may be regarded as a global reserve currency on a par with the US dollar or it may even become the leading reserve currency. Finally, the empirical analysis also shows that the proportion of the euro in foreign currency reserves differs by the groups of countries concerned; however, in the period under scrutiny it was mainly increasing. |
| Keywords: | international monetary system; international currency; foreign currency reserves; dollar; euro |
| JEL: | F02 F31 G20 |
| Date: | 2009–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14350&r=cba |
| By: | Manzan, Sebastiano; Zerom, Dawit |
| Abstract: | Much of the US inflation forecasting literature deals with examining the ability of macroeconomic indicators to predict the mean of future inflation, and the overwhelming evidence suggests that the macroeconomic indicators provide little or no predictability. In this paper, we expand the scope of inflation predictability and explore whether macroeconomic indicators are useful in predicting the distribution of future inflation. To incorporate macroeconomic indicators into the prediction of the conditional distribution of future inflation, we introduce a semi-parametric approach using conditional quantiles. The approach offers more flexibility in capturing the possible role of macroeconomic indicators in predicting the different parts of the future inflation distribution. Using monthly data on US inflation, we find that unemployment rate, housing starts, and the term spread provide significant out-of-sample predictability for the distribution of core inflation. Importantly, this result is obtained for a forecast evaluation period that we intentionally chose to be after 1984, when current research shows that macroeconomic indicators do not add much to the predictability of the future mean inflation. This paper discusses various findings using forecast intervals and forecast densities, and highlights the unique insights that the distribution approach offers, which otherwise would be ignored if we relied only on mean forecasts. |
| Keywords: | Conditional quantiles; Distribution; Inflation; Predictability; Phillips curve; Combining |
| JEL: | C53 E31 E52 C22 |
| Date: | 2009–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14387&r=cba |
| By: | Seiya Fujisaki (Graduate School of Economics, Osaka University) |
| Abstract: | We analyze the income velocity of money in an endogenous growth model with an interest-rate control rule and a cash-in-advance (CIA) constraint. We show that the long-term relationship between the income velocity of money and the nominal growth rate of money supply depends not only on the form of the CIA constraint but also on the central bankfs stance of interest-rate control rule. |
| Keywords: | velocity, an interest-rate control, endogenous growth, cash-in-advance constraint |
| JEL: | O42 E52 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0909&r=cba |
| By: | Stefano Eusepi; Bart Hobijn; Andrea Tambalotti |
| Abstract: | We construct a price index with weights for the prices of different PCE (personal consumption expenditures) goods chosen to minimize the welfare costs of nominal distortions. In this cost-of-nominal-distortions index (CONDI), the weights are computed in a multi-sector New Keynesian model with time-dependent price setting. The model is calibrated using U.S. data on the dispersion of price stickiness and labor shares across sectors. We find that the CONDI weights depend mostly on price stickiness and are less affected by the dispersion in labor shares. Moreover, CONDI stabilization closely approximates the optimal monetary policy and leads to negligible welfare losses. Finally, CONDI is better approximated by targeting core inflation rather than headline inflation--and is even better approximated with an adjusted core index that covers total expenditures excluding autos, clothing, energy, and food at home, but including food away from home. |
| Keywords: | Personal Consumption Expenditures Price Index ; Prices; core inflation, nominal rigidities, optimal monetary policy, price indexes |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:367&r=cba |
| By: | Axel A Weber; Rafael Gerke; Andreas Worms |
| Abstract: | Empirical evidence on whether the euro area monetary transmission process has changed is, at best, mixed. We argue that this inconclusiveness is likely to be due to the fact that existing empirical studies concentrate on the effects of a particular development on a specific transmission channel. Another problem of this literature is that specific changes could have off-setting effects regarding the overall effectiveness of monetary policy, leaving open the question whether the ability of monetary policy to control inflation has been altered. In order to shed light on this issue, we investigate whether there has been a significant change in the overall transmission of monetary policy to inflation and output by estimating a standard VAR for the euro area and by searching for a possible break date. We find a significant break point around 1996 and some evidence for a second one around 1999. We compare impulse responses to a monetary policy shock for these episodes and find that the well-known "stylised facts" of monetary policy transmission remain valid. Therefore, we argue that the general guiding principles of the Eurosystem monetary policy remain adequate. Moreover, it seems that monetary transmission after 1998 is not very different from before 1996, but probably very different in the interim period. This implies that evidence for the euro area could be biased by an "atypical" interim period 1996-1999. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Marvin Goodfriend and Armínio Fraga Neto. |
| Keywords: | Monetary policy transmission, Eurosystem, euro area, globalisation, financial development, VAR |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:276&r=cba |
| By: | Nakamura, Emi; Zerom, Dawit |
| Abstract: | Recent theoretical work has suggested a number of potentially important factors in causing incomplete pass-through of exchange rates to prices, including markup adjustment, local costs and barriers to price adjustment. We empirically analyze the determinants of incomplete passthrough in the coee industry. The observed pass-through in this industry replicates key features of pass-through documented in aggregate data: prices respond sluggishly and incompletely to changes in costs. We use microdata on sales and prices to uncover the role of markup adjustment, local costs, and barriers to price adjustment in determining incomplete pass-through using a structural oligopoly model that nests all three potential factors. The implied pricing model explains the main dynamic features of short and long-run pass-through. Local costs reduce long-run pass-through by a factor of 59% relative to a CES benchmark. Markup adjustment reduces pass-through by an additional factor of 33%, where the extent of markup adjustment depends on the estimated \super-elasticity" of demand. The estimated menu costs are small (0:23% of revenue) and have a negligible eect on long-run pass-through, but are quantitatively successful in explaining the delayed response of prices to costs. We nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level. |
| Keywords: | exchange rate pass-through; menu costs; discrete choice model |
| JEL: | L16 L11 F10 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14389&r=cba |
| By: | Ravi Bansal; Ivan Shaliastovich |
| Abstract: | In the data, asset prices exhibit large negative moves at frequencies of about 18 months. These large moves are puzzling as they do not coincide, nor are they followed by any significant moves in the real side of the economy. On the other hand, we find that measures of investor's uncertainty about their estimate of future growth have significant information about large moves in returns. We set-up a recursive-utility based model in which investors learn about the latent expected growth using the cross-section of signals. The uncertainty (confidence measure) about investor's growth expectations, as in the data, is time-varying and subject to large moves. The fluctuations in confidence measure affect the distribution of future consumption given investors' information, and consequently influence equilibrium asset prices and risk premia. In calibrations we show that the model can account for the large return move evidence in the data, distribution of asset prices, predictability of excess returns and other key asset market facts. |
| JEL: | E0 E44 G00 G12 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14815&r=cba |
| By: | Guglielmo Maria Caporale; Roman Matousek; Chris Stewart |
| Abstract: | This paper estimates ordered logit and probit regression models for bank ratings which also include a country index to capture country-specific variation. The empirical findings provide support to the hypothesis that the individual international bank ratings assigned by Fitch Ratings are underpinned by fundamental quantitative financial analyses. Also, there is strong evidence of a country effect. Our model is shown to provide accurate predictions of bank ratings for the period prior to the 2007 - 2008 banking crisis based upon publicly available information. However, our results also suggest that quantitative models are not likely to be able to predict ratings with complete accuracy. Furthermore, we find that both quantitative models and rating agencies are likely to produce highly inaccurate predictions of ratings during periods of financial instability. |
| Keywords: | International banks, ratings, ordered choice models, country index |
| JEL: | C25 C51 C52 G21 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp868&r=cba |
| By: | Riccardo De Bonis (Bank of Italy); Massimiliano Stacchini (Bank of Italy) |
| Abstract: | Given the importance of banking intermediation, we investigate the determinants of the size of bank loans in 18 OECD countries in the period 1981-1997. The aim of the paper is to show that the ratio of government debt to GDP has a negative effect on the level of bank credit. Second, countries with a German legal origin have higher ratios of loans to GDP than common law countries. Our results are robust to including such variables in the regressions as per capita GDP, stock market capitalization, the banking reserve requirement, the level of inflation and its volatility, openness to trade and the use of different econometric methods. |
| Keywords: | bank loans, government debt, financial repression, legal origin of finance |
| JEL: | G21 G18 C23 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_707_09&r=cba |
| By: | Silvio Contessi; Johanna Francis |
| Abstract: | How have U.S. commercial banks responded during the current financial crisis? What was hiding behind the dynamics of aggregate commercial bank loans through the end of 2008? We use balance sheet data for the entire population of commercial banks to construct quarterly gross credit flows (credit expansion and credit contraction series) for the U.S. banking system during the period 1999:Q1-2008:Q4 and provide new evidence on changes in lending. We show that credit expansion, as defined in this paper, began declining during the first half of 2008 while credit contraction began steeply increasing only between the third and fourth quarters of 2008. Until then net credit growth was below trend but positive and not dissimilar to the 1980 and 2001 recessions. However, between the third and fourth quarter credit contraction grew larger than credit expansion across all types of loans (real estate, individual, commercial, and industrial loans) and for the largest banks. On the contrary, smaller banks continued to display positive net credit growth. Once we include 2008:Q4 data, the cyclical properties of our series most resemble the beginning of the 1991 recession and the intensification of the Savings and Loan crisis. |
| Keywords: | Financial crises ; Business cycles ; Credit; Credit Market, Reallocation, Aggregate Restructuring, Business Cycle, Financial crisis |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-011&r=cba |
| By: | Eric Wong (Research Department, Hong Kong Monetary Authority); Cho-Hoi Hui (Research Department, Hong Kong Monetary Authority) |
| Abstract: | This study develops a stress-testing framework to assess liquidity risk of banks, where liquidity and default risks can stem from the crystallisation of market risk arising from a prolonged period of negative asset price shocks. In the framework, exogenous asset price shocks increase banks¡¯ liquidity risk through three channels. First, severe mark-to-market losses on the banks¡¯ assets increase banks¡¯ default risk and thus induce significant deposits outflows. Secondly, the ability to generate liquidity from asset sales continues to evaporate due to the shocks. Thirdly, banks are exposed to contingent liquidity risk, as the likelihood of drawdowns on their irrevocable commitments increases in such stressful financial environments. In the framework, the linkage between market and default risks of banks is implemented using a Merton-type model, while the linkage between default risk and deposit outflows is estimated econometrically. Contagion risk is also incorporated through banks¡¯ linkage in the interbank and capital markets. Using the Monte Carlo method, the framework quantifies liquidity risk of individual banks by estimating the expected cash-shortage time and the expected default time. Based on publicly available data as at the end of 2007, the framework is applied to a group of banks in Hong Kong. The simulation results suggest that liquidity risk of the banks would be contained in the face of a prolonged period of asset price shocks. However, some banks would be vulnerable when such shocks coincide with interest rate hikes due to monetary tightening. Such tightening is, however, relatively unlikely in a context of such shocks. |
| Keywords: | Liquidity risk, stress testing, default risk, banks |
| JEL: | C60 G13 G28 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0906&r=cba |
| By: | Mario J. Crucini; Mototsugu Shintani; Takayuki Tsuruga |
| Abstract: | We examine the role of nominal price rigidities in explaining the deviations from the Law of One Price (LOP) across cities in Japan. Focusing on intra-national relative prices isolates the border effect and thus enables us to extract the pure effect of sticky prices. A two-city model with nominal rigidities and transportation costs predicts that the variation of LOP deviations is lower for goods with less frequent price adjustment after controlling for the distance separating the cities. Using retail price data for individual goods and services collected in Japanese cities, we find strong evidence supporting this prediction. Adapting the Engel and Rogers (1996) regression framework to our theoretical setting, we quantify the separate roles of nominal rigidities and trade costs (proxied by distance) in generating LOP variability. Our estimates suggest that the distance equivalent of nominal rigidities can be as large as the `width' of the border typically found in the literature on international LOP deviations. The findings point to both the utility of the regression framework in identifying qualitative effects (i.e., sign of a coefficient) and the challenges interpreting their quantitative implications. |
| JEL: | D4 F40 F41 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14835&r=cba |
| By: | P. JACOB; G. PEERSMAN |
| Abstract: | This paper presents empirical evidence on the stochastic driving forces of the US trade balance. In an estimated two-country DSGE model, we .find that investment- specific technology shocks have the strongest impact on the volatility of cyclical trade balance .fluctuations, especially when the shocks are domestic and considered over longer forecast-horizons. At shorter horizons, US and foreign inter-temporal shocks that generate co-movement between consumption and investment, have an impact com- parable to that of the investment-specific technology shocks. In contrast, shocks to US public spending and neutral technology - both forces traditionally used to explain trade balance fluctuations - hardly explain the volatility |
| Keywords: | US Trade Balance, New Open Economy Macroeconomics, Bayesian Inference, DSGE Estimation |
| JEL: | C11 F41 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/544&r=cba |
| By: | Daniel de Munnik; David Dupuis; Mark Illing |
| Abstract: | A number of central banks publish their own business conditions survey based on non-random sampling methods. The results of these surveys influence monetary policy decisions and thus affect expectations in financial markets. To date, however, no one has computed the statistical accuracy of these surveys because their respective non-random sampling method renders this assessment non-trivial. This paper describes a methodology for modeling complex non-random sampling behaviour, and computing relevant measures of statistical confidence, based on a given survey's historical sample selection practice. We apply this framework to the Bank of Canada's Business Outlook Survey by describing the sampling method in terms of historical practices and Bayesian probabilities. This allows us to replicate the firm selection process using Monte Carlo simulations on a comprehensive micro-dataset of Canadian firms. We find, under certain assumptions, no evidence that the Bank's firm selection process results in biased estimates and/or wider confidence intervals. |
| Keywords: | Econometric and statistical methods; Central bank research; Regional economic developments |
| JEL: | C42 C81 C90 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:09-10&r=cba |
| By: | Pengfei Wang; Yi Wen |
| Abstract: | We develop a general-equilibrium model of inventories with explicit micro-foundations by embedding the production-cost-smoothing motive (e.g., Eichenbaum, AER 1989) into an otherwise standard DSGE model. We show that firms facing idiosyncratic cost shocks have incentives to bunch production and smooth sales by carrying inventories. The optimal inventory target of a firm is derived explicitly. The model is broadly consistent with many of the observed stylized facts of aggregate inventory fluctuations, such as the procyclical inventory investment and the countercyclical inventory-sales ratio. In addition, the model yields novel predictions for the role of inventories in macroeconomic stability: Inventories may not only greatly amplify but also propagate the business cycle. That is, the incentive to accumulate inventories under the cost-smoothing motive can give rise to hump-shaped output dynamics and significantly higher volatility of GDP. Such predictions are in sharp contrast to the implications of the recent general-equilibrium inventory literature (e.g., Khan and Thomas, 2007; and Wen, 2008), which shows that inventory investment induced by traditional mechanisms (e.g., the stockout-avoidance motive and the (S,s) rule) does not increase the variance of aggregate output. |
| Keywords: | Equilibrium (Economics) ; Business cycles ; Inventories |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-10&r=cba |
| By: | Zhigang Feng (Department of Economics, University of Miami); Jianjun Miao (Department of Economics, Boston University); Adrian Peralta-Alva (Research Division, Federal Reserve Bank of Saint Louis); Manual Santos (Department of Economics, University of Miami) |
| Abstract: | In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based upon a convergent operator over an expanded set of state variables. The ï¬xed point of this operator deï¬nes the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions. |
| Keywords: | Heterogeneous agents, taxes, externalities, financial frictions, competitive equilibrium, computation, simulation |
| JEL: | C6 D5 E2 |
| Date: | 2009–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:mia:wpaper:0912&r=cba |
| By: | Mirdala, Rajmund |
| Abstract: | The stable macroeconomic environment, as one of the primary objectives of the Visegrad countries in the 1990s, was partially supported by the exchange rate policy. Fixed exchange rate systems within gradually widen bands (Czech republic, Slovak republic) and crawling peg system (Hungary, Poland) were replaced by the managed floating in the Czech republic (May 1997), Poland (April 2000), Slovak republic (October 1998) and fixed exchange rate to euro with broad band in Hungary (October 2001). Higher macroeconomic and banking sector stability allowed countries from the Visegrad group to implement the monetary policy strategy based on the interest rate transmission mechanism. Continuous harmonization of the monetary policy framework (with the monetary policy of the ECB) and the increasing sensitivity of the economy agents to the interest rates changes allowed the central banks from the Visegrad countries to implement monetary policy strategy based on the key interest rates determination. In the paper we analyze the impact of the central banks’ monetary policy in the Visegrad countries on the selected macroeconomic variables in the period 1999-2008 implementing SVAR (structural vector autoregression) approach. We expect that the higher sensitivity of the selected macroeconomic indicators of the EMÚ candidate countries to the national monetary policy shocks would indicate the higher exposure of the selected countries to the ECB monetary policy impulses after the euro adoption in the future. |
| Keywords: | monetary policy; short-term interest rates; structural vector autoregression; variance decomposition; impulse-response function |
| JEL: | C32 E52 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14072&r=cba |
| By: | Johansson, Anders C. (China Economic Research Center) |
| Abstract: | This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that U.S. money supply Granger causes China’s real output, but that an alternative monetary instrument, the Federal Fund Rate, does not. Furthermore, there is a significant cointegrating relationship between U.S. money and China’s output, which means that there is a long-run relationship between them. Impulse response functions and variance decompositions also support the results, showing that shocks in the U.S. money supply have an effect on China’s real output. The results have important implications for policy makers in China that focus on maintaining a high and stable economic growth. They also have implications for U.S. policy makers. A number of countries around the world still fix their currencies against the U.S. dollar, which means that U.S. monetary policy has effects not only domestically but also in these countries. |
| Keywords: | China; United States; Monetary policy; Output; Causality; VECM |
| JEL: | C32 E40 E51 E52 E58 |
| Date: | 2009–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hacerc:2009-006&r=cba |
| By: | Ignacio Lozano Espitia; Karen Rodríguez |
| Abstract: | The focus of this paper is on the short-term macroeconomic effects of fiscal policy in Colombia in a structural vector autoregression context. Government spending shocks are found to have positive and significant effects on output, private consumption, employment, prices and short-term interest rates. The cumulative output multiplier fluctuates between 1.12 and 1.19 from the first to third year after the spending innovation. Shocks to direct taxation seem to be less efficient, because they mainly affect private investment, whereas shocks to indirect taxation do not seem to affect real activities significantly. From a policy perspective, our results support the smoothing role of fiscal policy on output fluctuations, which implies its capacity to restore real activity effectively in critical times like the ones currently being forecast. From a theoretical standpoint, the results are consistent with real business cycle and Keynesian models of both traditional partial equilibrium and new general equilibrium types. Keywords: |
| Date: | 2009–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:005386&r=cba |
| By: | Salem Boubakri |
| Abstract: | This study tests an international extension of the Asset Pricing Model (CAPM) based on the coexistence of two risk causes. The first cause is linked to the market portfolio and the second one is required by expectations about the variation of exchange rates. Through an application to various developed and emerging countries, we show that the exchange risk premium in the ICAPM is statistically and economically significant and contribues to the formation of the total risk premium by using the conditional approach of exchange rate variations. |
| Keywords: | Exchange risk premium, Purchasing Power Parity, conditional International Capital Asset Pricing Model (ICAPM) |
| JEL: | C32 F31 G11 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2009-5&r=cba |
| By: | Kitov, Ivan; Kitov, Oleg |
| Abstract: | Using an analog of the boundary element method in engineering and science, we analyze and model unemployment rate in Austria, Italy, the Netherlands, Sweden, Switzerland, and the United States as a function of inflation and the change in labor force. Originally, the model linking unemployment to inflation and labor force was developed and successfully tested for Austria, Canada, France, Germany, Japan, and the United States. Autoregressive properties of neither of these variables are used to predict their evolution. In this sense, the model is a self-consistent and completely deterministic one without any stochastic component (external shocks) except that associated with measurement errors and changes in measurement units. Nevertheless, the model explains between ~65% and ~95% of the variability in unemployment and inflation. For Italy, the rate of unemployment is predicted at a time horizon of nine (!) years with pseudo out-of-sample root-mean-square forecasting error of 0.55% for the period between 1973 and 2006. One can expect that the unemployment will be growing since 2008 and will reach ~11.4% [±0.6 %] near 2012. After 2012, unemployment in Italy will start to descend. |
| Keywords: | unemployment; inflation; labor force; boundary integral method; prediction; Western Europe |
| JEL: | E31 E24 J21 J64 J11 |
| Date: | 2009–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14341&r=cba |
| By: | Sean Holly; Mehdi Raissi |
| Abstract: | This paper investigates the macroeconomic benefits of international financial integration and domestic financial sector development for the European Union. The sample consists of 26 European countries with annual data during the period 1970.2004. We attempt to exploit more fully the temporal dimension in the data by making use of the common correlated effects (CCE) estimator. We also account for the nonstationarity of time series by employing the cross-section augmented panel unit root test of Pesaran (2007) and recently developed panel cointegration techniques. We check the robustness of these results by using the fully modified OLS method of Pedroni (2000). Our empirical results suggest a relationship between domestic financial sector development and labour productivity. We report evidence that real GDP per worker is positively linked to a measure of international financial integration (stock of international financial assets and liabilities expressed as a ratio to GDP). We also try to disentangle the effects on real GDP per worker of di¤erent types of capital flows (FDI, Portfolio equity, Debt) and are able to identify a significant positive effect on GDP per worker of debt inflows which we could attribute to the institutional environment that has been fostered by the European Union. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwfin:diwfin1040&r=cba |
| By: | Lorenzo Forni (Bank of Italy); Andrea Gerali (Bank of Italy); Massimiliano Pisani (Bank of Italy) |
| Abstract: | The paper assesses the effects of increasing competition in the service sector in Italy which, based on cross-country comparisons, is the OECD country with the highest markups in non-manufacturing industries. We propose a two-region (Italy and the rest of the euro area) dynamic general equilibrium model allowing for monopolistic competition in the labor, manufacturing and service markets. We then use the model to simulate the macroeconomic and spillover effects of increasing the degree of competition in the Italian services sector. Our results indicate that reducing the service sector markups to the levels of the rest of the euro area increases in the long run Italian GDP by 11 percent and welfare (measured in terms of steady state consumption equivalents) by about 3.5 percent. Half of the GDP increase would be realized in the first three years. The spillover effects to the rest of the euro area are limited. |
| Keywords: | competition, general equilibrium models, markups, monetary policy |
| JEL: | C51 E31 E52 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_706_09&r=cba |
| By: | Erling Røed Larsen (Statistics Norway) |
| Abstract: | Standard practice of estimating purchasing power parities (PPP) involves using prices, in domestic currencies, of a common basket of goods and services, then calculating the price-equalizing exchange rate. In this article, I substitute observed consumer behavior for price data. On the assumption that an Engel curve for food reflects material standard of living, I estimate Engel curves for food for the United States and Norway. This allows us to calculate the exchange rate required for re-aligning the two curves, i.e. the incomes needed in the two countries to purchase the same standard of living. Since different relative prices or preferences for food can affect the position and slope of the curves, I also estimate the Engel curves of non-food, for which the effect is opposite. Not only does this provide a band of upper and lower bounds of PPP, it also improves upon the assumption of preference homogeneity underlying conventional PPP-computations. Using Consumer Expenditure (CES) data for 2001, I obtain estimated PPP-levels for the rate of the Norwegian krone (NOK) versus the U.S. dollar (USD) in the 5.38-7.90 range. The average rate 1977-2007 was 6.81 NOK per USD. The conventional estimates of PPP from the World Bank and OECD are 8.84 and 9.18 NOK per USD, respectively. |
| Keywords: | Engel curve; exchange rate; material standard of living; purchasing power parity |
| JEL: | C20 D10 E30 F31 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:580&r=cba |
| By: | Irène Andreou (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Gilles Dufrénot (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579); Alain Sand-Zantman (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Aleksandra Zdzienicka-Durand (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | We propose a measure of the probability of crises associated with an aggregate indicator, where the percentage of false alarms and the proportion of missed signals can be combined to give an appreciation of the vulnerability of an economy. In this perspective, the important issue is not only to determine whether a system produces true predictions of a crisis, but also whether there are forewarning signs of a forthcoming crisis prior to its actual occurrence. To this end, we adopt the approach initiated by Kaminsky, Lizondo and Reinhart (1998), analyzing each indicator and calculating each threshold separately. We depart from this approach in that each country is also analyzed separately, permitting the creation of a more “custom-made” early warning system for each one. |
| Keywords: | Currency Crisis; Early Warning System; Composite Indicator; Eastern Europe |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00372728_v1&r=cba |
| By: | Jean-Pierre Allegret (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Alain Sand-Zantman (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | This paper analyses the monetary consequences of the Latin-American trade integration process. We consider a sample of five countries -Argentina, Brazil, Chile, Mexico and Uruguay- spanning the period 1991-2007. The main question raised pertains to the feasibility of a monetary union between L.A. economies. To this end, we study whether this set of countries is characterized by business cycle synchronization with the occurrence of common shocks, a strong similarity in the adjustment process and the convergence of policy responses. We focus especially our attention on two points. First, we tryto determine to what extent international disturbances influence the domestic business cycles through trade and/or financial channels. Second, we analyze the impact of the adoption of different exchange rate regimes on the countries' responses to shocks. All these features are the main issues in the literature relative to regional integration and OCA process. |
| Keywords: | bayesian VAR ; business cycles ; Latin American countries ; optimum currency area |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00371069_v1&r=cba |
| By: | Sebastian Weber |
| Abstract: | The European Union made a number of steps not least of them the introduction of a common currency to foster the integration of the European financial markets. A number of papers have tried to gauge the degree of integration for various financial markets looking at the convergence of interest rates. A common finding is that government bond markets are quite well integrated. In this paper stochastic Kernel density estimates are used to take a closer look at the dynamics that drive the process of interest rate convergence. The main finding is that countries with large initial deviations from the mean interest rate do indeed converge. Interestingly the candidates least suspected namely the countries initially with interest rates at the mean level show a pattern of slight divergence. |
| Keywords: | Financial markets integration, euro area government bonds, stochastic Kernel density estimates |
| JEL: | C23 G15 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwfin:diwfin1012&r=cba |
| By: | Bruce D. Meyer; James X. Sullivan |
| Abstract: | This paper examines poverty in the United States from 1960 through 2005. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across family types, contrast these trends for several different income and consumption measures of poverty, and consider explanations for the differences in trends. We document sharp differences, particularly in recent years, between different income poverty measures, and between income and consumption poverty rates and gaps. Moving from the official pre-tax money income measure to a disposable income measure that incorporates taxes and transfers has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption poverty rates often indicate large declines, even in recent years when income poverty rates have risen. We show that bias in the CPI-U has a sizable effect on changes in poverty. Between the early 1960s and 2005, an income poverty measure that corrects for bias in this price index declines by 14 percentage points more than a comparable measure based on the CPI-U. The patterns are very different across family types, with consumption poverty falling much faster than income poverty for single parents and the elderly, but more slowly for married couples with children. Income and consumption measures of deep poverty and poverty gaps have generally moved sharply in opposite directions in the last two decades with income deep poverty and poverty gaps rising, but consumption deep poverty and poverty gaps falling. While relative poverty rose in the early 1980s, changes in relative poverty have been fairly small since 1990. We examine the role that demographics, taxes, and transfers play in explaining changes in poverty over the past three decades. We also consider whether measurement error, saving and dissaving, and other explanations can account for income and consumption differences. |
| JEL: | D12 I32 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14827&r=cba |
| By: | Members of the SEEMHN data collection task force with a foreword by Michael Bordo and an introduction by Matthias Morys; |
| Abstract: | TThe South-Eastern European Monetary History Network (SEEMHN) is a community of financial historians, economists and statisticians, established in April 2006 at the initiation of the Bulgarian National Bank and the Bank of Greece. Its objective is to spread knowledge on the economic history of the region in the context of European experience with a specific focus on financial, monetary and banking history. The SEEMHN Data Collection Task Force aims at establishing a historical database with 19th and 20th century financial and monetary data for the countries in the region. A set of data has already been published as an annex to the 2007 conference proceedings, released by the OeNB (2008, Workshops, no 13). The second stage of the SEEMHN Data Collection Task force includes reports from all participating central banks. For each country, historical aggregates are preceded by a description of the country’s monetary events and explanatory remarks. The data set refers to banknotes in circulation, reserves, discount rates and exchange rates. The frequency is monthly and the time span covers the period from 1870 and beyond to 1914. A foreword on the paramount importance of historical data series is supplemented by Prof. Michael Bordo (Rutgers University). An introduction on crosscountry historical comparison is written by Dr. Matthias Morys (University of York). Here we present data displays for each country written by Kliti Ceca, Kelmend Rexha and Elsida Orhan for Albania (Banka e Shqiperise); Thomas Scheiber for Austria-Hungary (Oesterreichische Nationalbank); Kalina Dimitrova (Balgarska Narodna Banka) and Martin ivanov (Bulgarian Academy of Science) for Bulgaria; Sopfia Lazaretou for Greece (Bank of Greece); George Virgil Stoenescu, Elisabeta Blejan, Brindusa Costache and Adriana Iarovici Aloman for Romania (Banca Nationala a Romaniei); Milan Sojic, Ljiljana Durdevic, Sanja Borkovic and Olivera Jovanovic for Serbia (Narodna Banka Srbije). We strongly believe that by making the historical time series available to a wider audience for the first time ever, research interests in monetary and financial economics in this part of Europe will be further stimulated. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:94&r=cba |
| By: | ARANHA, Marcel Z.; MOURA, Marcelo L. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_155&r=cba |
| By: | Ziaei, Sayyed Mahdi |
| Abstract: | In this empirical study, we perform cointegrated relation to analyze the effects of monetary policy on bank credit to private sector, foreign assets and foreign debts in ten MENA countries include: Algeria, Bahrain, Egypt, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunis and Turkey. There are two co-integration techniques, the Johanson co-integration and dynamic ordinary least square (DOLS) are used to examine long run relationship between the variables. The empirical evidences with aggregate data of ten MENA countries show that bank credit to private sector and foreign asset increasing with a monetary expansion. However, the positions of banks’ foreign debts aren’t similar for different countries. Hence, the aggregate data show that bank lending channel is likely to be an effective monetary transmission mechanism in MENA countries. |
| Keywords: | Bank Lending; Monetary Transmission; Capital Flows |
| JEL: | E51 F32 E52 |
| Date: | 2009–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14331&r=cba |