nep-cba New Economics Papers
on Central Banking
Issue of 2010‒01‒30
thirty-one papers chosen by
Alexander Mihailov
University of Reading

  1. How Central Should the Central Bank Be? By Alan S. Blinder
  2. Commentary on Policy at the Zero Lower Bound By Christopher A. Sims
  3. The Leverage Cycle By John Geanakoplos
  4. Financial intermediation, asset prices, and macroeconomic dynamics By Tobias Adrian; Emanuel Moench; Hyun Song Shin
  5. Monetary cycles, financial cycles, and the business cycle By Tobias Adrian; Arturo Estrella; Hyun Song Shin
  6. An area-wide real-time database for the euro area. By Domenico Giannone; Jérôme Henry; Magdalena Lalik; Michele Modugno
  7. Non-uniform staggered prices and output persistence By Söderberg, Johan
  8. The Federal Reserve's Commercial Paper Funding Facility By Tobias Adrian; Karin Kimbrough; Dina Marchioni
  9. Jointly Optimal Monetary and Fiscal Policy Rules under Borrowing Constraints By Michael Kumhof; Huixin Bi
  10. Assessing McCallum and Taylor rules in a cross-section of emerging market economies By Mehrotra, Aaron; Sánchez-Fung, José R.
  11. Bubbles in Asset Prices By Burton G. Malkiel
  12. Lending Relationships and Monetary Policy By Henrique S. Basso and Javier Coto-Martinez, Yunus Aksoy,
  13. Determinants of inflation and price level differentials across the euro area countries. By Malin Andersson; Klaus Masuch; Marc Schiffbauer
  14. Demand for Reserves and the Central Bank's Management of Interest Rates By Schlegel, Martin; Kraenzlin, Sébastien
  15. The reception of public signals in financial markets – what if central bank communication becomes stale? By Michael Ehrmann
  16. “Lost Decade†in Translation:What Japan’s Crisis could Portend about Recovery from the Great Recession By Murtaza H. Syed; Kiichi Tokuoka; Kenneth Kang
  17. Elasticity Optimism By Jean Imbs; Isabelle Méjean
  18. Common factors in small open economies: inference and consequences By Pablo A. Guerron-Quintana
  19. Capital Controls and Welfare By Shigeto Kitano
  20. The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact By Pelin Berkmen; Robert Rennhack; James P Walsh; Gaston Gelos
  21. Central Bank Independence and Budget Deficits in Developing Countries: New Evidence from Panel Data Analysis By Yannick Lucotte
  22. The General Data Dissemination System (GDDS)-A Reflection on its First 12 Years and Plans for Taking it Forward By Charles Enoch; Robin D. Kibuka
  23. On the Sources of Oil Price Fluctuations By Deren Unalmis; Ibrahim Unalmis; D. Filiz Unsal
  24. Exchange Rate Assessments: Methodologies for Oil Exporting Countries By Irineu E. Carvalho Filho; Rudolfs Bems
  25. Money and finance: the heterodox views of R. Clower, A. Leijonhufvud and H. Minsky By Elisabetta De Antoni
  26. Monetary Regimes in Post-Communist Countries. Some Long-Term Reflections By Nikolay Nenovsky
  27. United Kingdom Eurozone Entry Scenarios Evaluated By John Ryan
  28. An SVAR Analysis of Monetary Policy Dynamics and Housing Market Responses in Australia By IKM Mokhtarul Wadud; Omar HMN Bashar; Huson Joher Ali Ahmed
  29. Macroeconomic announcements, communication and order flow on the Hungarian foreign exchange market By Michael Frömmel; Norbert Kiss M.; Klára Pintér
  30. Measures of Inflation in India: Issues and Perspectives By Deepak Mohanty
  31. Inflation in Tajikistan:Dynamic and Forecasting Analysis and Monetary Policy Challenges By Fahad Alturki; Svetlana Vtyurina

  1. By: Alan S. Blinder (Princeton University)
    Abstract: About six years ago, I published a small book entitled The Quiet Revolution (Blinder 2004). Though its subtitle was Central Banking Goes Modern, I never imagined the half of it. Since March 2008, the Federal Reserve has gone post-modern with a bewildering variety of unprecedented actions that have either changed the nature and scope of the central bank’s role or stretched it beyond the breaking point, depending on your point of view. And that leads straight to the central question of this essay: What should--and shouldn’t--the Federal Reserve do?
    Keywords: Federal reserve bank, monetary policy, central bank
    JEL: E42 E50 E60 G21
    Date: 2010–01
  2. By: Christopher A. Sims (Princeton University)
    Abstract: Several aspects of the difficulties of policy at the zero lower bound are discussed: The difficulty of credible commitment to higher future inflation, as most New Keynesian models imply is necessary; the need for fiscal and monetary policy coordination; the pitfalls in the taking of quasi-fiscal actions by the central bank.
    Keywords: central banks, monetary policy, keynesian economics, inflation
    JEL: E42 E50 E60 G21
    Date: 2010–01
  3. By: John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
    Keywords: Leverage, Collateral, Cycle, Crisis, Regulation
    JEL: E3 E32 G12
    Date: 2009–07
  4. By: Tobias Adrian; Emanuel Moench; Hyun Song Shin
    Abstract: Fluctuations in the aggregate balance sheets of financial intermediaries provide a window on the joint determination of asset prices and macroeconomic aggregates. We document that financial intermediary balance sheets contain strong predictive power for future excess returns on a broad set of equity, corporate, and Treasury bond portfolios. We also show that the same intermediary variables that predict excess returns forecast real economic activity and various measures of inflation. Our findings point to the importance of financing frictions in macroeconomic dynamics and provide quantitative guidance for preemptive macroprudential and monetary policies.
    Keywords: Macroeconomics ; Intermediation (Finance) ; Assets (Accounting) ; Forecasting
    Date: 2010
  5. By: Tobias Adrian; Arturo Estrella; Hyun Song Shin
    Abstract: One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. The economic rationale for this forecasting power usually appeals to expectations of future interest rates, which affect the slope of the term structure. In this paper, we propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries. When monetary tightening is associated with a flattening of the term spread, it reduces net interest margin, which in turn makes lending less profitable, leading to a contraction in the supply of credit. We provide empirical support for this hypothesis, thereby linking monetary cycles, financial cycles, and the business cycle.
    Keywords: Monetary policy ; Intermediation (Finance) ; Interest rates ; Forecasting ; Business cycles
    Date: 2010
  6. By: Domenico Giannone (Université Libre de Bruxelles, ECARES CP 144, B-1050 Bruxelles, Belgium.); Jérôme Henry (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Magdalena Lalik (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Michele Modugno (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper describes how we constructed a real-time database for the euro area covering more than 200 series regularly published in the European Central Bank Monthly Bulletin, as made available ahead of publication to the Governing Council members before their first meeting of the month. We describe the database in details and study the properties of the euro area real-time data flow and data revisions, also providing comparisons with the United States and Japan. We finally illustrate how such revisions can contribute to the uncertainty surrounding key macroeconomic ratios and the NAIRU. JEL Classification: C01, C82, E24, E58.
    Keywords: real-time; euro area; revisions; database.
    Date: 2010–01
  7. By: Söderberg, Johan (Department of Economics)
    Abstract: Staggered prices are a fundamental building block of New Keynesian dynamic stochastic general equilibrium models. In the standard model, prices are uniformly staggered but recent empirical evidence suggest that deviations from uniform staggering are common, This paper analyzes how synchronization of price changes affects the response to monetary policy shocks. I find that even large deviations from uniform staggering have small effects on the response in output. Aggregate dynamics in a model of uniform staggering may serve well as an approximation to a more complicated model with some degree of synchronization in price setting.
    Keywords: Price setting; Staggering; Synchronization; Persistence
    JEL: E31 E32
    Date: 2010–01–21
  8. By: Tobias Adrian; Karin Kimbrough; Dina Marchioni
    Abstract: The Federal Reserve created the Commercial Paper Funding Facility (CPFF) in the midst of severe disruptions in money markets following the bankruptcy of Lehman Brothers on September 15, 2008. The CPFF finances the purchase of highly rated unsecured and asset-backed commercial paper from eligible issuers via primary dealers. The facility is a liquidity backstop to U.S. issuers of commercial paper, and its creation was part of a range of policy actions undertaken by the Federal Reserve to provide liquidity to the financial system. This paper documents aspects of the financial crisis relevant to the creation of the CPFF, reviews the operation of the CPFF, discusses use of the facility, and draws conclusions for lender-of-last-resort facilities in a market-based financial system.
    Keywords: Federal Reserve System ; Commercial paper ; Financial crises ; Liquidity (Economics) ; Federal Reserve Bank of New York
    Date: 2010
  9. By: Michael Kumhof; Huixin Bi
    Abstract: We study the welfare properties of an economy where both monetary and fiscal policy follow simple rules, and where a subset of agents is borrowing constrained. The optimized fiscal rule is far more aggressive than automatic stabilizers, and stabilizes the income of borrowingconstrained agents, rather than output. The optimized monetary rule features super-inertia and a very low coefficient on inflation, which minimizes real wage volatility. The welfare gains of optimizing the fiscal rule are far larger than the welfare gains of optimizing the monetary rule. The preferred fiscal instruments are government spending and transfers targeted to borrowing-constrained agents.
    Keywords: Borrowing , Economic models , External shocks , Fiscal policy , Monetary policy , Welfare ,
    Date: 2009–12–28
  10. By: Mehrotra, Aaron (BOFIT); Sánchez-Fung, José R. (BOFIT)
    Abstract: The paper estimates McCallum and Taylor monetary policy reaction functions, and hybrids mixing instruments and targets from the two frameworks, for 20 emerging market economies. McCallum-Taylor specifications with an interest rate instrument and a nominal income gap target perform better than benchmark Taylor rules in describing monetary policy in inflation targeting economies. Estimating reaction functions for economies operating monetary and exchange rate targeting regimes produces mixed results, often revealing a lean with the wind behaviour. Instrument smoothing is a feature in the monetary base and in the interest rate reaction functions, but the exchange rate is not consistently significant. The results from the econometric analysis are robust to using alternative estimators.
    Keywords: McCallum and Taylor rules; nominal feedback rule; monetary policy; inflation targeting; emerging markets
    JEL: E52 E58 F41
    Date: 2010–01–21
  11. By: Burton G. Malkiel (Princeton University)
    Abstract: The severe world-wide recession of 2008-09 has focused attention on the role of asset-price bubbles in exacerbating economic instability in capitalist economies. The boom in house prices in the United States from 2000 through 2006 is a case in point. According to the Case-Shiller 20-city index, the inflation-adjusted price of a median-sized house in the United States doubled over the period 2000-2006. House prices rose far more than the underlying fundamental drivers of home prices such as family income and rents. The bursting of the bubble was followed by a sharp rise in foreclosures and massive declines in the value of mortgage-backed securities and a variety of derivatives tied to these securities. The collapse of these prices led to the weakening, and in some cases the collapse, of major financial institutions around the world and contributed to one of the most serious recessions in the United States in the entire post-World War II period. The housing bubble is the most recent example of the asset-price bubbles that have often afflicted capitalist economies. Sharp increases in asset prices have frequently led to crashes and subsequent sharp declines in economic activity. Many economists have argued, controversially, that central banks should adjust their policy instruments to account not only for their forecasts of future inflation and the gap between actual and potential output, but for asset prices as well. This paper will address three topics. First, I will describe what economists mean when they use the term bubble, and I will contrast the behavioral-finance view of asset pricing with the efficient-market paradigm in an attempt to understand why bubbles might persist and why they may not be arbitraged away. Second, I will review some major historical examples of asset-price bubbles as well as the (minority) view that they may not have been bubbles at all. I will also examine the corresponding changes in real economic activity that have followed the bursting of such bubbles. Finally, I will examine the most hotly-debated aspect of any discussion of asset-price bubbles: what, if anything, should policy makers do about them? Should they react to sharp increases in asset prices that they deem to be unrelated to fundamentals? Should they take the view that they know more than the market does? Should they recognize that asset-price bubbles are a periodic flaw of capitalism and conduct their policies so as to temper any developing excesses? Or should they focus solely on their primary targets of inflation and real economic activity? In my discussion I will pay particular attention to bubbles that are associated with sharp increases in credit and leverage.
    Keywords: Asset prices, price bubbles, housing prices, housing bubble
    JEL: D01 D40 E30 H30 G33
    Date: 2010–01
  12. By: Henrique S. Basso and Javier Coto-Martinez, Yunus Aksoy, (,
    Abstract: Financial intermediation and bank spreads are important elements in the analysis of business cycle transmission and monetary policy. We present a simple framework that introduces lending relationships, a relevant feature of financial intermediation that has been so far neglected in the monetary economics literature, into a dynamic stochastic general equilibrium model with staggered prices and cost channels. Our main findings are: (i) banking spreads move countercyclically generating amplified output responses, (ii) spread movements are important for monetary policy making even when a standard Taylor rule is employed (iii) modifying the policy rule to include a banking spread adjustment improves stabilization of shocks and increases welfare when compared to rules that only respond to output gap and inflation, and finally (iv) the presence of strong lending relationships in the banking sector can lead to indeterminacy of equilibrium forcing the central bank to react to spread movements.
    Keywords: Endogenous Banking Spread; Credit Markets; Cost Chanell of Monetary Transmission; Firm-bank Relationships
    JEL: E44 E52 G21
    Date: 2010–01–21
  13. By: Malin Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Klaus Masuch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marc Schiffbauer (University of Bonn, Regina-Pacis-Weg 3, D-53113 Bonn, Germany.)
    Abstract: This paper analyses the determinants of inflation differentials and price levels across the euro area countries. Dynamic panel estimations for the period 1999-2006 show that inflation differentials are primarily determined by cyclical positions and inflation persistence. The persistence in inflation differentials appears to be partly explained by administered prices and to some extent by product market regulations. In a cointegrating framework we find that the price level of each euro area country is governed by the levels of GDP per capita. JEL Classification: E32, E52, E43, F2.
    Keywords: inflation differentials, inflation persistence, price level, convergence.
    Date: 2009–12
  14. By: Schlegel, Martin (Swiss National Bank); Kraenzlin, Sébastien (Swiss National Bank)
    Abstract: The implementation of monetary policy is prevalently done by interest rate targeting with a short term market rate serving as operational target. The instruments for achieving the operational target are the provision of reserves and the interest rate charged in these transactions. This paper presents a model for the estimation of the demand curve for reserves, derived from the central bank’s fixed rate tender auction and the interbank money market. Using data from Switzerland, the slope of the demand curve is estimated. Furthermore, properties of the demand curve such as the slope patterns in the course of a maintenance period and the slope in different monetary regimes are assessed. We find a steeper demand curve towards the end of the maintenance period and an increasing slope when the general interest rate level is high. Further, we investigate the role of the Swiss National Bank’s (SNB) interest rate in the fixed rate tender auctions. There is evidence that the SNB uses its auction rate to guide the interbank market rate.
    Keywords: mplementation of Monetary Policy; Money Demand; Fixed Rate Tender Auction; Repo; Switzerland
    JEL: D40 E41 E43 E52
    Date: 2009–07–01
  15. By: Michael Ehrmann (European Central Bank)
    Abstract: How do financial markets price new information? This paper analyzes price setting at the intersection of private and public information, by testing whether and how the reaction of financial markets to public signals depends on the relative importance of private information in agents’ information sets at a given point in time. It studies the reaction of UK short-term interest rates to the Bank of England’s inflation report and to acroeconomic announcements. Due to the quarterly frequency at which the Bank of England releases one of its main publications, it can become stale over time. In the course of this process, financial market participants need to rely more on private information. The paper develops a stylized model which predicts that, the more time has elapsed since the latest release of an inflation report, market volatility should increase, the price response to macroeconomic announcements should be more pronounced, and macroeconomic announcements should play a more important role in aligning agents’ information set, thus leading to a stronger volatility reduction. The empirical evidence is fully supportive of these hypotheses.
    Keywords: public signals, inflation reports, monetary policy, interest rates, announcement effects, co-ordination of beliefs, Bank of England
    JEL: E58 E43 G12 G14
    Date: 2009
  16. By: Murtaza H. Syed; Kiichi Tokuoka; Kenneth Kang
    Abstract: Is the recovery from the global financial crisis now secured? A strikingly similar crisis that stalled Japan's growth miracle two decades ago could provide some clues. This paper explores the parallels and draws potential implications for the current global outlook and policies. Japan's experiences suggest four broad lessons. First, green shoots do not guarantee a recovery, implying a need to be cautious about the outlook. Second, financial fragilities can leave an economy vulnerable to adverse shocks and should be resolved for a durable recovery. Third, well-calibrated macroeconomic stimulus can facilitate this adjustment, but carries increasing costs. And fourth, while judging the best time to exit from policy support is difficult, clear medium-term plans may help.
    Keywords: Banking crisis , Banking sector , Central bank policy , Demand , Economic recovery , Financial crisis , Fiscal policy , Global Financial Crisis 2008-2009 , International financial system , Japan , Liquidity management , Monetary policy , Private sector , Public investment ,
    Date: 2009–12–22
  17. By: Jean Imbs; Isabelle Méjean
    Abstract: In most macroeconomic models, the substitutability between domestic and foreign goods is calibrated using aggregated data. This imposes homogeneous elasticities across goods, and the calibration is only valid under this assumption. If elasticities are heterogeneous, the aggregate substitutability is a weighted average of good-specific elasticities, which in general cannot be inferred from aggregated data. We identify structurally the substitutability in US goods using multilateral trade data. We impose homogeneity, and find an aggregate elasticity similar in value to conventional macroeconomic estimates. It is more than twice larger with sectoral heterogeneity. We discuss the implications in various areas of international economics.
    Keywords: Consumer goods , Data analysis , Economic models , Exports , Imports , International trade , Monetary policy , United States ,
    Date: 2009–12–18
  18. By: Pablo A. Guerron-Quintana
    Abstract: Inference about common international stochastic trends and interest rates is gained using a small open economy model, data from seven developed countries, and Bayesian methods. Shocks to these common factors explain up to 17 percent of the variability of output in several economies. Country-specific preference and premium disturbances account for the bulk of the volatility observed in the data. There is substantial heterogeneity in the estimated structural parameters as well as stochastic processes for the countries in the sample. This diversity translates into a rich array of impulse responses across countries. According to the model, the recent low international interest rates might have initially deepened the decline of GDP in several developed economies.
    Keywords: Econometric models ; Recessions ; Business cycles ; International economic relations
    Date: 2010
  19. By: Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper computes welfare levels under different degree of capital controls and compares them with the welfare level under perfect capital mobility by using the methodology of Schmitt-Grohe and Uribe (2007). We show that perfect capital mobility is not always optimal and that capital controls may enhance an economy's welfare level. There exists an optimal degree of capital-account restriction that achieves a higher level of welfare than that under perfect capital mobility, if the economy has a distortion due to financial intermediaries such as inefficient banks. The results of our analysis imply that as the domestic financial intermediaries are less efficient, the government should impose stricter capital controls in the form of a tax on foreign borrowing.
    Keywords: Jcapital controls, welfare, DSGE, small open economy
    JEL: F41
    Date: 2010–01
  20. By: Pelin Berkmen; Robert Rennhack; James P Walsh; Gaston Gelos
    Abstract: We provide one of the first attempts at explaining the differences in the crisis impact across developing countries and emerging markets. Using cross-country regressions to explain the factors driving growth forecast revisions after the eruption of the global crisis, we find that a small set of variables explain a large share of the variation in growth revisions. Countries with more leveraged domestic financial systems and more rapid credit growth tended to suffer larger downward revisions to their growth outlooks. For emerging markets, this financial channel trumps the trade channel. For a broader set of developing countries, however, the trade channel seems to have mattered, with countries exporting more advanced manufacturing goods more affected than those exporting food. Exchange-rate flexibility clearly helped in buffering the impact of the shock. There is also some -weaker-evidence that countries with a stronger fiscal position prior to the crisis were hit less severely. We find little evidence for the importance of other policy variables.
    Keywords: Credit expansion , Cross country analysis , Developing countries , Economic forecasting , Economic growth , Emerging markets , Financial crisis , Financial systems , Fiscal policy , Flexible exchange rates , Global Financial Crisis 2008-2009 , Trade ,
    Date: 2009–12–18
  21. By: Yannick Lucotte (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
    Abstract: Over the past two decades, many countries have passed legislation giving more independence to their central banks. This institutional evolution has concerned several developed countries but also developing countries and, is consistent with the Barro and Gordon's theory of time-inconsistent monetary policy, which emphasizes the importance of independence in terms of acquiring anti-inflationary credibility. But, central bank independence (CBI) could also affect the design of fiscal policy. Indeed, theoretical literature shows that a greater degree of independence influences government to fiscal discipline; conversely, a weak degree of independence may influence the government to pursue lax fiscal policy. However, the few empirical studies that attempted to assess the relation between CBI and budget deficits principally focused on industrial countries and provided disappointing econometric results. This paper seeks to address this gap in the literature by providing empirical analysis of the influence of CBI on budget deficits in a large set of developing countries over the 1995-2004 period. Using a panel data analysis and two indicators of CBI, the results show a negative relationship between CBI and budget deficits.
    Keywords: Central bank independence; Budget balances; Developing countries; Panel data analysis
    Date: 2009
  22. By: Charles Enoch; Robin D. Kibuka
    Abstract: The paper reviews the developments in the last 12 years that have influenced the evolution of the IMF's General Data Dissemination System, leading to reforms to enhance its role. The GDDS itself is part of a broader IMF Data Standards Initiative launched in 1996 to help address macroeconomic data deficiencies, which contributed to the emerging economies' financial crisis during the early 1990s. The review takes stock of the experience with statistical technical assistance provided to member countries and the ongoing reforms, within and outside the IMF, to strengthen the GDDS. Such reforms are particularly relevant in the context of the ongoing economic and financial crisis, which once again underscores the role of statistics in guiding policymakers to strengthen defenses against future crises.
    Keywords: Access to capital markets , Data quality assessment framework , Emerging markets , Financial crisis , Fund role , General Data Dissemination System , Special Data Dissemination Standard , Standards and codes , Statistics , Technical assistance ,
    Date: 2009–12–18
  23. By: Deren Unalmis; Ibrahim Unalmis; D. Filiz Unsal
    Abstract: Analyzing macroeconomic impacts of oil price changes requires first to investigate different sources of these changes and their distinct effects. Kilian (2009) analyzes the effects of an oil supply shock, an aggregate demand shock, and a precautionary oil demand shock. The paper's aim is to model macroeconomic consequences of these shocks within a new Keynesian DSGE framework. It models a small open economy and the rest of the world together to discover both accompanying effects of oil price changes and their international transmission mechanisms. Our results indicate that different sources of oil price fluctuations bring remarkably diverse outcomes for both economies.
    Keywords: Demand , Economic models , External shocks , Fiscal policy , Inflation targeting , Monetary policy , Oil prices , Oil production , Price increases , Productivity , Supply ,
    Date: 2009–12–28
  24. By: Irineu E. Carvalho Filho; Rudolfs Bems
    Abstract: Are the current account fluctuations in oil-exporting countries "excessive"? How should their real exchange rate respond to the evolution of external (and domestic) fundamentals? This paper proposes methodologies tailored to the specific features of oil-exporting countries that help address these questions. Price-based methodologies (based on the time series of real effective exchange rates) identify a strong link between the real exchange rate and the terms of trade, but have relatively limited explanatory power. On the other hand, an empirical model of the current account, which fits oil exporting countries' data well, and an intertemporal model that takes into account the stock of oil reserves provide useful benchmarks for oil exporters' external balances.
    Keywords: Commodity price fluctuations , Current account , Economic models , Exchange rates , Fiscal policy , Oil exporting countries , Oil prices , Oil revenues , Real effective exchange rates ,
    Date: 2009–12–18
  25. By: Elisabetta De Antoni
    Abstract: The heterodoxy of Robert Clower, Axel Leijonhufvud and Hyman Minsky consisted in dispensing with the dominant assumption according to which the system spontaneously tends to a situation of full coordination. In analysing the effective disequilibrium behaviour of the system, all three came to the conclusion that monetary and financial forces have a crucial importance for coordination and that their role can be highly destabilising. Contrary to the dominant theory, all three offer useful insights to understand what is happening today.
    Date: 2009
  26. By: Nikolay Nenovsky
    Abstract: This article offers an attempt at typologisation of the evolution of monetary regimes in post-communist countries (1990-2008), which is exceptionally varied by character. Two large groups have emerged: type 1 – countries, which started their reforms with a regime of fixed exchange rate and dominating external sources of money supply, and type 2 – countries starting their reforms with a floating exchange rate and predominating internal sources of money supply. The first type is much more successful and appropriate for managing the problems of transition. Some other elements of typologisation have also been suggested based on specific definitions of monetary system and monetary regime. The article also presents various approaches, which can explain the evolution of monetary regimes observed in the former socialist countries.
    Keywords: monetary regimes; post-communist countries; comparative economics
    JEL: E5 P2
    Date: 2009
  27. By: John Ryan (University of Venice)
    Abstract: After 10 years of abstinence from the European Monetary Union, should the UK be seriously thinking about joining the Eurozone? Especially in view of the European Central Bank's improved reputation as a crisis manager in the wake of the financial crisis, could EMU represent a safe haven for the UK economy? Would it be wise for Britain to attach itself to the reserve currency Euro to avoid the perils of drifting alone on a storm-tossed open sea? These are big questions. They have been debated in the UK for a generation and have become relevant again during the current financial and economic crises. I will in this short paper assess three scenarios regarding the UK and the Euro - UK entry, EMU collapses before a UK entry, No UK entry and I will discuss the Eurozone view on potential UK membership.
    Keywords: UK Economy, Eurozone, Euro, Sterling, European Central Bank
    JEL: E12 E41 E52 E60 F02
    Date: 2009
  28. By: IKM Mokhtarul Wadud; Omar HMN Bashar; Huson Joher Ali Ahmed
    Abstract: This paper examines the impact of monetary policy and a range of sector-specific and macroeconomic shocks on the Australian housing market using quarterly data for a period of 1974-2008. The paper develops a structural vector autoregressive (SVAR) model based on contemporaneous restrictions to analyse the dynamics of these shocks. The results indicate that supply of new houses in Australia rises with higher real house prices; and that house prices rise and fall with higher inflation rate and interest rate, respectively. Dynamics of the impulse responses reveal significant effect of monetary policy on new house constructions, real house prices, material costs and inflation. Results also suggest that housing output, real house prices and interest rates respond significantly to shocks to housing supply, housing demand and to a number of other variables. These results are expected to shed some lights on the current policy environment pertaining to the Australian housing sector.
    Keywords: Monetary transmission, Housing market, Structural VAR
    JEL: R31 E52 E62 C51
    Date: 2009–12–22
  29. By: Michael Frömmel (Department of Financial Economics, Ghent University; Institute for Money and International Finance, Leibniz Universität Hannover); Norbert Kiss M. (Magyar Nemzeti Bank (central bank of Hungary)); Klára Pintér (Magyar Nemzeti Bank (central bank of Hungary))
    Abstract: We investigate the relation between the EUR/HUF exchange rate on the one hand and news announcements and order flow on the other hand using intraday data. We extend the existing literature on foreign exchange market microstructure by considering a small open transition economy. We find that the intraday exchange rate – independent from whether we focus on the mean or the volatility – depends on both news announcements and order flow. We conclude that news on the EUR/HUF market are transmitted directly via immediate reactions to news announcements as well as indirectly via order flow. We decompose the news’ total effect on exchange rate and find that order flow accounts for approximately three quarters, compared to one quarter for direct news impact. Although the HUF has been pegged to the EUR, the exchange rate reacts qualitatively very similarly to exchange rates of major currencies as reported in the literature, but quantitatively we observe a remarkable difference: the share of the indirect channel is higher on the EUR/HUF market. Furthermore we extend the commonly used news by communication of central bankers and significantly improve the explanatory power of the regressions. Our results imply that macroeconomic and microstructure variables together can explain a non-negligible part of high frequency exchange rate movements and central bank communication is an important determinant of the EUR/HUF rate.
    Keywords: microstructure, order flow, exchange rate, macroeconomic news, central bank communication.
    JEL: F31 G14 G15
    Date: 2009
  30. By: Deepak Mohanty
    Abstract: A review of the various primary measures of inflation with a particular reference to the divergence between WPI and CPI. Focus is also given on different secondary (derived) measures of inflation, particularly core inflation, and end the discussion with some thoughts on the way forward. [Speech at the Conference of Indian Association for Research in National Income and Wealth (IARNIW)].
    Keywords: national income, wealth, whole sale price index, consumption, expenditure, data, income, prices, crude prices, consumer prices indices, inflation, WPI, CPI, Indian, central banks, monetary policy, prices, primary measures, Keynes,
    Date: 2010
  31. By: Fahad Alturki; Svetlana Vtyurina
    Abstract: This paper attempts to explain short- and long-term dynamics of-and forecast-inflation in Tajikistan using the Vector Error Correction Model (VECM) and Autoregressive Moving Average Model (ARMA). By analyzing different transmission channels through the VECM, we were able to evaluate their relative dominance, magnitude, and speed of transition to the equilibrium price level, with the view of identifying those policy tools that will enhance the effectiveness of monetary policy. We found that excess supply of broad money is inflationary in both the short and long term. The dynamic analysis also demonstrates that the exchange rate and international inflation have a strong impact on local prices. Available monetary instruments, such as the refinancing rate, have proven to be ineffective. Therefore, the Tajik monetary authority could greatly benefit from enhancing its monetary instruments toolkit, including by developing the interest rate channel, to improve its monetary policy execution and to achieve stable inflationary conditions.
    Date: 2010–01–19

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