|
on Central Banking |
| By: | Stefan Laséen; Lars E.O. Svensson |
| Abstract: | This paper specifies how to do policy simulations with alternative instrument-rate paths in DSGE models such as Ramses, the Riksbank's main model for policy analysis and forecasting. The new element is that these alternative instrument-rate paths are anticipated by the private sector. Such simulations correspond to situations where the Riksbank transparently announces that it plans to implement a particular instrument-rate path and where this announcement is believed by the private sector. Previous methods have instead implemented alternative instrument-rate paths by adding unanticipated shocks to an instrument rule, as in the method of modest interventions by Leeper and Zha (2003). This corresponds to a very different situation where the Riksbank would nontransparently and secretly plan to implement deviations from an announced instrument rule. Such deviations are in practical simulations normally both serially correlated and large, which seems inconsistent with the assumption that they would remain unanticipated by the private sector. Simulations with anticipated instrument-rate paths seem more relevant for the transparent flexible inflation targeting that the Riksbank conducts. We provide an algorithm for the computation of policy simulations with arbitrary restrictions on nominal and real instrument-rate paths for an arbitrary number of periods after which a given policy rule, including targeting rules and explicit, implicit, or forecast-based instrument rules is implemented. When inflation projections are sufficiently sensitive to the real interest-rate path, restrictions on real interest-rate paths provide more intuitive and robust results, whereas restrictions on nominal interest-rate path may provide somewhat counter-intuitive results. |
| JEL: | E52 E58 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14902&r=cba |
| By: | James D. Hamilton; Michael T. Owyang |
| Abstract: | This paper develops a framework for inferring common Markov-switching components in a panel data set with large cross-section and time-series dimensions. We apply the framework to studying similarities and differences across U.S. states in the timing of business cycles. We hypothesize that there exists a small number of cluster designations, with individual states in a given cluster sharing certain business cycle characteristics. We find that although oil-producing and agricultural states can sometimes experience a separate recession from the rest of the United States, for the most part, differences across states appear to be a matter of timing, with some states entering recession or recovering before others. |
| Keywords: | Business cycles ; Recessions |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-13&r=cba |
| By: | Hans-Werner Wohltmann; Roland Winkler |
| Abstract: | The purpose of this paper is to show how to solve linear dynamic rational expectations models with anticipated shocks by using the generalized Schur decomposition method. Furthermore, we determine the optimal unrestricted and restricted policy responses to anticipated shocks. We demonstrate our solution method by means of a micro-founded hybrid New Keynesian model and show that anticipated cost-push shocks entail higher welfare losses than unanticipated shocks of equal size |
| Keywords: | Anticipated Shocks, Optimal Monetary Policy, Rational Expectations, Generalized Schur Decomposition, Welfare Effects |
| JEL: | C61 C63 E52 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1507&r=cba |
| By: | Andrew Atkeson; V. V. Chari; Patrick Kehoe |
| Abstract: | In standard approaches to monetary policy, interest rate rules often lead to indeterminacy. Sophisticated policies, which depend on the history of private actions and can differ on and off the equilibrium path, can eliminate indeterminacy and uniquely implement any desired competitive equilibrium. Two types of sophisticated policies illustrate our approach. Both use interest rates as the policy instrument along the equilibrium path. But when agents deviate from that path, the regime switches, in one example to money; in the other, to a hybrid rule. Both lead to unique implementation, while pure interest rate rules do not. We argue that adherence to the Taylor principle is neither necessary nor sufficient for unique implementation with pure interest rate rules but is sufficient with hybrid rules. Our results are robust to imperfect information and may provide a rationale for empirical work on monetary policy rules and determinacy. |
| JEL: | E5 E52 E58 E6 E61 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14883&r=cba |
| By: | Mewael F. Tesfaselassie; Eric Schaling |
| Abstract: | We analyze determinacy and stability under learning (E-stability) of rational expectations equilibria in the Blanchard and Galí (2006, 2008) New-Keynesian model of inflation and unemployment, where labor market frictions due to costs of hiring workers play an important role. We derive results for alternative specifications of monetary policy rules and alternative values of hiring costs as a percentage of GDP. Under low hiring costs – a typical part of the U.S. calibration – for policy rules based on current period inflation and unemployment our results are similar to those of Bullard and Mitra (2002). However, we find that the region of indeterminacy and E-instability in the policy space increases with the hiring costs. So, higher hiring costs – consistent with the European 'sclerotic' labor market institutions – seem to play an important part in explaining unemployment instability. Under lagged data based rules the area where monetary policy delivers both determinacy and E-stability shrinks. These rules perform worse according to these two dimensions when hiring costs go up. Finally, under expectations-based rules – unlike Bullard and Mitra (2002) – an additional explosive region is introduced. Here also the scope for determinacy and E-stability oriented monetary policy decreases. Interestingly – under the same rule and European 'sclerotic' labor market institutions – we find that responding too much to expected inflation and too little to expected unemployment may very well be self-defeating. When hiring costs are large, a central bank that follows such a policy rule could very easily end up in the worst-case scenario of both indeterminacy and E-instability |
| Keywords: | Monetary Policy Rules, Determinacy, Learning, E-Stability |
| JEL: | E52 E31 D84 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1506&r=cba |
| By: | Barry Eichengreen; Ashoka Mody; Milan Nedeljkovic; Lucio Sarno |
| Abstract: | How did the Subprime Crisis, a problem in a small corner of U.S. financial markets, affect the entire global banking system? To shed light on this question we use principal components analysis to identify common factors in the movement of banks' credit default swap spreads. We find that fortunes of international banks rise and fall together even in normal times along with short-term global economic prospects. But the importance of common factors rose steadily to exceptional levels from the outbreak of the Subprime Crisis to past the rescue of Bear Stearns, reflecting a diffuse sense that funding and credit risk was increasing. Following the failure of Lehman Brothers, the interdependencies briefly increased to a new high, before they fell back to the pre-Lehman elevated levels – but now they more clearly reflected heightened funding and counterparty risk. After Lehman's failure, the prospect of global recession became imminent, auguring the further deterioration of banks' loan portfolios. At this point the entire global financial system had become infected. |
| JEL: | F36 G15 G18 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14904&r=cba |
| By: | Liam Graham; Stephen Wright |
| Abstract: | We provide a microfounded account of imperfect information in a dynamic general equilibrium model by describing heterogeneous households that acquire information only through their participation in markets. Thus incomplete markets will imply incomplete information. We solve the model taking full account of the infinite regress of expectations, and show that the properties of the model change dramatically. Under virtually all calibrations the impact response of consumption to a positive aggregate technology shock is negative. If households observe a noisy public signal in addition to the information they obtain from markets, consumption responds to shocks sluggishly |
| Keywords: | imperfect information, higher order expectations, Kalman Filter, dynamic general equilibrium |
| JEL: | D52 D84 E32 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1503&r=cba |
| By: | Philippe Moutot; Giovanni Vitale |
| Abstract: | Since the mid-1980s the world economy has gone through profound transformations of which the sources and effects are probably not yet completely understood. The process of continuous integration in trade, production and financial markets across countries and economic regions--which is what is generally defined as "globalisation"--affects directly the conduct of monetary policy in a variety of respects. The aim of this paper is to present an overview of the structural implications of globalisation for the domestic economies of developed countries and to deduct from these implications lessons for the conduct of monetary policy, and in particular the assessment of risks to price stability. |
| Keywords: | Globalization ; Monetary policy ; Inflation (Finance) ; International finance ; International trade |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:29&r=cba |
| By: | S. Boragan Aruoba; Frank Schorfheide |
| Abstract: | We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. The model is estimated and evaluated based on postwar U.S. data. We document its money demand properties and determine the optimal long-run inflation rate that trades off the New Keynesian distortion against the distortion caused by taxing money and hence transactions in the decentralized market. We find that target rates of -1% or less are desirable, which contrasts with policy recommendations derived from a cashless New Keynesian model. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:09-8&r=cba |
| By: | Monika Piazzesi; Martin Schneider |
| Abstract: | This paper studies household beliefs during the recent US housing boom. To characterize the heterogeneity in households’ views about housing and the economy, we perform a cluster analysis on survey responses at different stages of the boom. The estimation always finds a small cluster of households who believe it is a good time to buy a house because house prices will rise further. The size of this “momentum” cluster doubled towards the end of the boom. We also provide a simple search model of the housing market to show how a small number of optimistic investors can have a large effect on prices without buying a large share of the housing stock. ; This paper is an extension of Monika Piazzesi's and Martin Schneider's work while they were in the Research Department of the Federal Reserve Bank of Minneapolis. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:422&r=cba |
| By: | Christian Merkl |
| Abstract: | In the standard New Keynesian sticky price model the central bank faces no contradiction between the stabilization of inflation and the stabilization of the welfare relevant output gap after a productivity shock hits the economy. When the standard model is enhanced by real wage rigidities or labor turnover costs, an endogenous short-run inflation-output tradeoff arises. This paper compares the implications of the two labor market rigidities. It argues that economists and policymakers alike should pay more attention to labor turnover costs for the following reasons. First, a model with labor turnover costs generates impulse response functions that are more in line with the empirical evidence than those of a model with real wage rigidities. Second, labor turnover costs are the dominant source for the inflation-output tradeoff when both rigidities are present in the model. And finally, there is stronger empirical evidence for the existence of labor turnover costs than for real wage rigidities |
| Keywords: | monetary policy, real wage rigidity, labor turnover costs, unemployment, tradeoff |
| JEL: | E24 E32 E52 J23 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1495&r=cba |
| By: | Guido Ascari; Tiziano Ropele |
| Abstract: | When taken to examine disinflation monetary policies, the current workhorse DSGE model of business cycle fluctuations successfully accounts for the main stylized facts in terms of recessionary effects and sacrifice ratio. We complement the transitional analysis of the short-run costs with a rigorous welfare evaluation and show that, despite the long-lasting economic downturn, disinflation entails non-zero overall welfare gains |
| Keywords: | Disinflation, Sacrifice ratio, Non-linearities |
| JEL: | E31 E5 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1499&r=cba |
| By: | Christopher Reicher |
| Abstract: | A labor matching model with nominal rigidities can match short-run movements in labor’s share with some success. However, it cannot explain much of the behavior of employment, vacancies, and job flows in postwar US data without resorting to additional shocks beyond monetary policy and productivity shocks. In particular, the model suggests that monetary policy shocks can account for only a small portion of postwar fluctuations, except for the Volcker and late-1940s episodes. Productivity shocks can account for some of the pattern in labor’s share and in employment between the late 1960s and the early 1980s. Based on the timing of observed fluctuations in interest rates, inflation, and productivity, it appears that the vast majority of observed fluctuations in the real economy remain unexplained by standard real and nominal shocks |
| Keywords: | Unemployment, labor market search, job flows, labor share, inflation, productivity shocks, monetary shocks |
| JEL: | E24 E32 E52 J64 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1496&r=cba |
| By: | NAKAJIMA Tomoyuki |
| Abstract: | We consider an efficiency-wage model with the Calvo-type sticky prices and analyze the optimal monetary policy when the unemployment insurance is not perfect. With imperfect risk sharing, the strict zero-inflation policy is no longer optimal even when the steady-state equilibrium is made (conditionally) efficient. Quantitative results depend on how the idiosyncratic earnings loss due to unemployment varies over business cycles. If the idiosyncratic income loss is acyclical, the optimal policy differs very little from the zero-inflation policy. However, if it varies countercyclically, as evidence suggests, the deviation of the optimal policy from the complete price-level stabilization becomes quantitatively signifficant. Furthermore, the optimal policy in such a case involves stabilization of output to a much larger extent. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:09014&r=cba |
| By: | Tijmen Daniëls; Henk Jager; Franc Klaassen |
| Abstract: | While virtually all currency crisismodels recognise that the fate of a currency peg depends on how tenaciously policy makers defend it, they seldom model how this is done. We incorporate themechanics of speculation and the interest rate defence against it in the model ofMorris and Shin (American Economic Review 88, 1998). Our model captures that the interest rate defence reduces speculators’ profits and thus postpones the crisis. It predicts that well before the fall of a currency interest rates are increased to offset the buildup of exchange market pressure, and this then unravels in a sharp depreciation. This pattern is at odds with predictions of standard models, but we show that it fits well with reality. |
| Keywords: | Exchange Market Pressure, Currency Crisis, Interest Rate Defence, Global Game |
| JEL: | E58 F31 F33 G15 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2009-011&r=cba |
| By: | Agnes Benassy-Quere; Sophie Bereau; Valerie Mignon |
| Abstract: | We study the impact of the global financial crisis on the equilibrium exchange rate of the US dollar. We first simulate the impact of the crisis on the US net foreign asset position. Then, we calculate the equilibrium value of the dollar according both to a BEER and to a FEER approach. We find the case for a strong, although temporary, depreciation of the dollar even more acute than before the crisis. This suggests that the strength of the dollar in late 2008 and early 2009 may be short-lived. |
| Keywords: | Equilibrium exchange rate; US dollar; global imbalances; crisis; valuation effects |
| JEL: | F31 C23 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2009-08&r=cba |
| By: | Eiji Ogawa; Kentaro Iwatsubo |
| Abstract: | In this paper, we estimate structural VAR models with contemporaneous restrictions based on neo-classical and Keynesian theories to investigate whether the cause of current account surpluses for East Asian economies is a gsaving gluth or undervalued currencies. Analytical results show that the major determinant of the current account is the real effective exchange rate for all East Asian countries with the exception of China for which the major determinant is domestic GDP. Accordingly, the recently requested revaluation of the Chinese yuan may not be an effective policy for reducing the Chinese current account surplus, and may affect other Asian current accounts. We also investigate whether a Chinese currency revaluation would contribute to the improvement of current account imbalances in East Asia and find that a revaluation would improve the current accounts of Japan, Korea, Indonesia, and Thailand. Since the trade structures of major East Asian countries are substitutes with that of China, a Chinese currency revaluation might not lead to a decrease, rather that an increase, in East Asian current account surpluses. Coordination of currency policy among East Asian countries is, therefore, needed to solve the global current account imbalance. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd08-048&r=cba |
| By: | Rasmus Fatum (University of Alberta) |
| Abstract: | This paper investigates whether official Japanese intervention in the JPY/USD exchange rate over the January 1999 to March 2004 time period is effective. By integrating the official intervention data with a comprehensive set of newswire reports capturing days on which there is a rumor or speculation of intervention, the paper also attempts to shed some light on through which of the two channels, the signaling channel in a broad sense or the portfolio balance channel, effective Japanese intervention works. The results suggest that Japanese intervention is effective during the first 5 years of the sample and ineffective during the last 3 months of the sample, thereby providing an ex-post rationale for why Japan intervened as well as for why the interventions stopped. Moreover, the results suggest that when Japanese intervention is effective, it works through a portfolio-balance channel. The results do not rule out that effective intervention also works through signaling. |
| Keywords: | exchange rates; foreign exchange market intervention; channels of Transmission |
| JEL: | E52 F31 G14 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:09-02&r=cba |
| By: | Eiji Ogawa; Kentaro Iwatsubo |
| Abstract: | This paper is to investigate how much realignment of currencies is needed for adjustments to the current account imbalances of Japan compared with those of East Asia as a whole, given the productions networks in East Asia. The analyses show that the large realignments of the Japanese yen and other East Asian currencies would be needed if the adjustments are completed with only exchange rates. We also find that the degree of the exchange rate adjustments of East Asia as a whole is smaller than that of Japan only. Moreover, we investigate why the adjustment becomes more difficult if we rely only on the exchange rates in Japan. We find that Japanese outward FDI has increased independently with the exchange rate and that a ratio of income account to current account has increased due to the FDI. The findings imply that the Japanese economy has an increasing structural part of the Japanese current account which does not respond to the exchange rate movement. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd08-050&r=cba |
| By: | Fabio Milani (Department of Economics, University of California-Irvine) |
| Abstract: | Recent research has suggested that globalization may have transformed the U.S. Phillips curve by making inflation a function of global, rather than domestic, economic activity. This paper tests this view by estimating a structural model for the U.S., which incorporates a role of global output on the domestic demand and supply relations and on the formation of expectations. Expectations are modeled as near-rational and economic agents are allowed to learn about the economy's coefficients over time. The estimation reveals small and negative coefficients for the sensitivity of inflation to global output; moreover, the fit of the model improves when global output is excluded from the Phillips curve. Therefore, the evidence does not support altering the traditional closed-economy Phillips curve to include global output. The data suggest, instead, that global output may play an indirect role through the determination of domestic output. But the overall impact of global economic conditions on U.S. inflation remains negligible. |
| Keywords: | Globalization; Global output; Inflation dynamics; New Keynesian Phillips curve; Global slack hypothesis; Constant-gain learning |
| JEL: | E31 E50 E52 E58 F41 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:080920&r=cba |
| By: | Riccardo DiCecio; Edward Nelson |
| Abstract: | We argue that the Great Inflation experienced by both the United Kingdom and the United States in the 1970s has an explanation valid for both countries. The explanation does not appeal to common shocks or to exchange rate linkages, but to the common doctrine underlying the systematic monetary policy choices in each country. The nonmonetary approach to inflation control that was already influential in the United Kingdom came to be adopted by the United States during the 1970s. We document our position by examining official policymaking doctrine in the United Kingdom and the United States in the 1970s, and by considering results from a structural macroeconomic model estimated using U.K. data. |
| JEL: | E31 E52 E58 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14895&r=cba |
| By: | Riccardo DiCecio; Edward Nelson |
| Abstract: | We argue that the Great Inflation experienced by both the United Kingdom and the United States in the 1970s has an explanation valid for both countries. The explanation does not appeal to common shocks or to exchange rate linkages, but to the common doctrine underlying the systematic monetary policy choices in each country. The nonmonetary approach to inflation control that was already influential in the United Kingdom came to be adopted by the United States during the 1970s. We document our position by examining official policymaking doctrine in the United Kingdom and the United States in the 1970s, and by considering results from a structural macroeconomic model estimated using U.K. data. |
| Keywords: | Inflation (Finance) ; Great Britain |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-15&r=cba |
| By: | Hyungsik Roger Moon; Frank Schorfheide |
| Abstract: | A large sample approximation of the posterior distribution of partially identified structural parameters is derived for models that can be indexed by a finite-dimensional reduced form parameter vector. It is used to analyze the differences between frequentist confidence sets and Bayesian credible sets in partially identified models. A key difference is that frequentist set estimates extend beyond the boundaries of the identified set (conditional on the estimated reduced form parameter), whereas Bayesian credible sets can asymptotically be located in the interior of the identified set. Our asymptotic approximations are illustrated in the context of simple moment inequality models and a numerical illustration for a two-player entry game is provided. |
| JEL: | C11 C32 C35 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14882&r=cba |
| By: | W. Scott Frame |
| Abstract: | Fannie Mae and Freddie Mac are government-sponsored enterprises that play a central role in U.S. residential mortgage markets. In recent years, policymakers became increasingly concerned about the size and risk-taking incentives of these two institutions. In September 2008, the federal government intervened to stabilize Fannie Mae and Freddie Mac in an effort to ensure the reliability of residential mortgage finance in the wake of the subprime mortgage crisis. This paper describes the sources of financial distress at Fannie Mae and Freddie Mac, outlines the measures taken by the federal government, and presents some evidence about the effectiveness of these actions. Looking ahead, policymakers will need to consider the future of Fannie Mae and Freddie Mac as well as the appropriate scope of public sector activities in primary and secondary mortgage markets. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2009-13&r=cba |
| By: | Andrew Ching (University of Toronto); Susumu Imai (Queen's University); Masakazu Ishihara (University of Toronto); Neelam Jain (Northern Illinois University) |
| Abstract: | This paper provides a step-by-step guide to estimating discrete choice dynamic programming (DDP) models using the Bayesian Dynamic Programming algorithm developed by Imai Jain and Ching (2008) (IJC). The IJC method combines the DDP solution algorithm with the Bayesian Markov Chain Monte Carlo algorithm into a single algorithm, which solves the DDP model and estimates its structural parameters simultaneously. The main computational advantage of this estimation algorithm is the efficient use of information obtained from the past iterations. In the conventional Nested Fixed Point algorithm, most of the information obtained in the past iterations remains unused in the current iteration. In contrast, the Bayesian Dynamic Programming algorithm extensively uses the computational results obtained from the past iterations to help solving the DDP model at the current iterated parameter values. Consequently, it significantly alleviates the computational burden of estimating a DDP model. We carefully discuss how to implement the algorithm in practice, and use a simple dynamic store choice model to illustrate how to apply this algorithm to obtain parameter estimates. |
| Keywords: | Bayesian Dynamic Programming, Discrete Choice Dynamic Programming, Markov Chain Monte Carlo |
| JEL: | C11 M3 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1201&r=cba |
| By: | Sebnem Kalemli-Ozcan; Elias Papaioannou; José Luis Peydró |
| Abstract: | Standard theory predicts that financial integration leads to a lower degree of business cycle synchronization. Surprisingly, cross-country studies find the opposite. Our contribution is to document the theoretically predicted negative effect of financial integration on business cycle synchronization as a robust regularity. We use a confidential dataset on banks' international bilateral exposure over the past three decades in a panel of twenty developed countries. The rich panel structure allows us to control for time-invariant country-pair factors and global trends that affect both financial integration and business cycle patterns. In contrast to previous empirical work we find that a higher degree of financial integration is associated with less synchronized output cycles. We also employ two distinct instrumental variable approaches to identify the one-way effect of integration on synchronization. These specifications reveal that the component of banking integration predicted by legislative-regulatory harmonization policies and the nature of the bilateral exchange rate regime has a negative effect on output synchronization. |
| JEL: | E32 F15 F36 G21 O16 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14887&r=cba |
| By: | Edward Nelson |
| Abstract: | This paper analyzes the interaction of Milton Friedman and U.K. economic policy from 1938 to 1979. The period under study is separated into 1938-1946, 1946-1959, 1959-1970, and 1970-1979. For each of these subperiods, I consider Friedman's observations on and dealings with key events, issues, and personalities in U.K. monetary policy and in general U.K. economic policy. |
| Keywords: | Friedman, Milton ; Economic policy - Great Britain |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-17&r=cba |
| By: | Irène Andreou (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France); Aleksandra Zdzienicka (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France) |
| Abstract: | In this work we use a panel probit model to analyze the sources of financial vulnerability in four Central and Eastern European countries. The incontestable advantages of applying this method, associated with some elements of the non-parametric approach applied during the initial selection of the used indicators, allow us to accomplish, rather well, this objective. Indeed, the model performs considerably well in the sample and the whole approach can provide useful and supportive instruments for the study of financial vulnerabilities in transition economies. |
| Keywords: | Financial Vulnerability, Panel Probit Model, CEECs |
| JEL: | C35 F31 F32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0907&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); 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: | In this work we use a panel probit model to analyze the sources of financial vulnerability in four Central and Eastern European countries. The incontestable advantages of applying this method, associated with some elements of the non-parametric approach applied during the initial selection of the used indicators, allow us to accomplish, rather well, this objective.Indeed, the model performs considerably well in the sample and the whole approach can provide useful and supportive instruments for the study of financial vulnerabilities in transition economies. |
| Keywords: | Financial Vulnerability; Panel Probit Model; CEECs |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00374148_v1&r=cba |
| By: | Riccardo DiCecio; Edward Nelson |
| Abstract: | Developments in open-economy modeling, and the accumulation of experience with the monetary policy regimes prevailing in the United Kingdom and the euro area, have increased our ability to evaluate the effects that joining monetary union would have on the U.K. economy. This paper considers the debate on the United Kingdom’s monetary policy options using a structural open-economy model. We use the Erceg, Gust, and López-Salido (EGL) (2007) model to explore both the existing U.K. regime (CPI inflation targeting combined with a floating exchange rate), and adoption of the euro, as monetary policy options for the United Kingdom. Experiments with a baseline estimated version of the model suggest that there is improved stability for the U.K. economy with monetary union. Once large differences in the degree of nominal rigidity across economies are considered, the balance tilts toward the existing U.K. monetary policy regime. The improvement in U.K. economic stability under monetary union also diminishes if imports from the euro area are modeled as primarily intermediates instead of finished goods; or if we assume that the pressures reflected in foreign exchange market shocks, instead of vanishing with monetary union, are now manifested as an additional source of disturbances to domestic aggregate spending. |
| JEL: | E32 E42 E52 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14894&r=cba |
| By: | J. James Reade; Ulrich Volz |
| Abstract: | In this paper, the monetary policy independence of European nations in the years before European Monetary Union (EMU) is investigated using cointegration techniques. Daily data is used to assess pairwise relationships between individual EMU nations and ‘lead’ nation Germany, to assess the hypothesis that Germany was the dominant European nation prior to EMU. By and large our econometric investigations support this hypothesis, and lead us to conclude that the only European nation to lose monetary policy independence in the light of monetary union was Germany. |
| Keywords: | Monetary policy independence, European monetary integration, Cointegrated VAR method |
| JEL: | E52 E58 F41 F42 C32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:419&r=cba |
| By: | Dimitri B. Papadimitriou; Greg Hannsgen |
| Abstract: | Federal government and Federal Reserve (Fed) liabilities rose sharply in 2008. Who holds these new liabilities, and what effects will they have on the economy? Some economists and politicians warn of impending inflation. In this new Strategic Analysis, the Levy Institute's Macro-Modeling Team focuses on one positive effect--a badly needed improvement of private sector balance sheets--and suggest some of the reasons why it is unlikely that the surge in Fed and federal government liabilities will cause excessive inflation. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_apr_09_2&r=cba |
| By: | Eiji Ogawa; Taiyo Yoshimi |
| Abstract: | This paper investigates recent diverging trends among East Asian currencies as well as recent movements of the weighted average value of East Asian currencies (Asian Monetary Unit: AMU) and deviations (AMU Deviation Indicators) of the East Asian currencies from the average values by ƒÀ and ƒÐ convergence methods. Our empirical analysis shows that linkages with the US dollar have been weakening since 2001 or 2002 for some of the East Asian countries. On the other hand, the monetary authority of China continues stabilizing the exchange rate of the Chinese yuan against the US dollar even though it announced its adoption of a currency basket system. It is found that the weighted average of East Asian currencies has been appreciating against the US dollar while depreciating against the currency basket of the US dollar and the euro until the global financial crisis in 2008. Also, the analytical results on ƒÀ and ƒÐ Convergences show that deviations among the East Asian currencies have been widening@in recent years, reflecting the fact that these countriesf monetary authorities are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia. |
| JEL: | F31 F33 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd08-049&r=cba |
| By: | Oguz Atuk; Mustafa Utku Ozmen |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0903&r=cba |
| By: | Balázs Égert |
| Abstract: | This paper studies drivers of high-frequency (daily) dynamics of the South African rand vis-à-vis the dollar from January 2001 to July 2007. We find strong nonlinear effects of commodity prices, perceived country and emerging market risk premium and changes in the dollar-euro exchange rate on changes in daily returns of the rand-dollar exchange rate. We also identify a one-sided nonlinear mean reversion to the long-term monetary equilibrium. In addition we establish very short-lived effects on the exchange rate of selected macroeconomic surprises and central bank communication aimed at talking up the rand.<P>L’impact des fondamentaux monétaires et de matières premières, des nouvelles macroéconomiques et de la communication de la Banque centrale sur le taux de change : Le cas de l’Afrique du Sud<BR>Ce document étudie les facteurs qui peuvent expliquer la dynamique journalière du rand sud-africain vis-à-vis du dollar sur la période allant de janvier 2001 à juillet 2007. Nous trouvons que les prix des matières premières, la perception du risque par rapport à l’Afrique du Sud et aux pays émergents et les changements du taux de change dollar-euro influencent forcément les variations des rendements journalières du taux de change du rand par rapport au dollar de manière non linéaire. Nos résultats indiquent aussi que le rand s’ajuste vers son niveau d’équilibre monétaire de manière non linéaire lorsque le taux de change du marché est plus fort que le taux de change d’équilibre. De plus, il se trouve que certaines nouvelles macroéconomiques et la communication de banque centrale visant l’appréciation du rand exercent une influence de très court terme sur le cours du rand par rapport au dollar. |
| Keywords: | exchange rates, taux de change, South Africa, Afrique du Sud, commodity prices, central bank communication, communication de la Banque centrale, macroeconomic news, nouvelles macroéconomiques, nonlinearity, non-linéarité, monetary model, modèle monétaire, prix des commodités |
| JEL: | E31 F31 O11 P17 |
| Date: | 2009–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:692-en&r=cba |