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on Central Banking |
| By: | Whelan, Karl |
| Abstract: | Systemic risk refers to the risk of financial system breakdown due to linkages between institutions. This risk cannot be assessed by looking at how individual institutions manage risks but instead requires a full understanding of how the system as a whole operates. At present, the data available to central banks and financial regulators are not at all adequate for the task of assessing systemic risk and the new European Systemic Risk Board needs to address this issue. There is a lot of exciting ongoing research devoted to measuring systemic risk and providing signals to regulators as to when and where they should intervene. However, the tools being developed are still limited in their usefulness. Perhaps more pressing than the development of these tools is the implementation of policy measures to make the financial system more robust. These measures should include higher capital ratios, limits on non-core funding and redesigning financial systems to be less complex. |
| Keywords: | Financial institutions--Management; Risk--Europe; Financial institutions--Law and legislation--Europe; Financial crises--Prevention; |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ucddub:urn:hdl:10197/1672&r=cba |
| By: | Sayera Younus |
| Abstract: | The objective of this study is to examine empirically the impact of monetary policy on exchange market pressure (EMP) in Bangladesh. [Bangladesh Bank WP NO. 0603]. |
| Keywords: | pressure, bangladesh, bank, monetary policy, exchange, foreign exchange, currency, market pressure, empirically, Variance, Domestic Credit Growth, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2389&r=cba |
| By: | Philippe Andrade; Marios Zachariadis |
| Abstract: | We exploit the panel dimension of a price levels dataset for more than one hundred product items across 140 cities in 90 countries for the period from 1990 to 2009 in order to improve our understanding of international price dispersion and the evolution of prices over time. We consider a panel data model with exchangeable units that allows for the possibility of common components for different dimensions of the panel. This allows one to gauge the contribution of each dimension of the data to total variation and to disentangle the sources of potential non-stationarity. It also allows us to identify differences in the speed of convergence for different time-varying components in response to location-specific, product-specific, and idiosyncratic shocks. Finally, we proceed to identify the economic determinants of different components to show that particular dimensions of the data are more suited for examining particular theories. |
| Keywords: | Price levels, Variance decomposition, Convergence, Non-stationarity, International price dispersion |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:2-2010&r=cba |
| By: | Céline Azémar; Rodolphe Desbordes |
| Abstract: | We investigate the effect of a rise in non-wage labour costs (NWLC) on real manufacturing labour costs in OECD countries, taking into account the degree of coordination in the wage bargaining process. We find that, in countries in which wage bargaining is not highly coordinated, 55% of an increase in NWLC appears to be shifted to workers in the long run, whereas in countries operating under a highly coordinated bargaining regime, full shifting occurs. Overall, our results suggest that high NWLC can be associated with a high equilibrium unemployment rate, but only in those OECD countries that do not have highly coordinated wage bargaining. |
| Keywords: | labour costs, tax wedge, wage determination, bargaining coordination. |
| JEL: | H22 H30 H55 J32 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2010_02&r=cba |
| By: | Guido Ascari (Università di Pavia); Andrea Vaona (Department of Economics (University of Verona)) |
| Abstract: | Regional patterns of inflation persistence have received attention only at a very coarse level of territorial disaggregation, that of EMU member states. However economic disparities within EMU member states are an equally important policy issue. This paper considers a country with a large regional divide, i.e., Italy, at a fine level of territorial disaggregation (NUTS3). Our results show that economically backward regions display greater inflation persistence. Moreover, we show that higher persistence is linked to a lower degree of competitiveness in the retail sector. Finally, the inflation persistence at the national level does not present any geographical aggregation bias, because it equals the mean of inflation persistence of provincial data. |
| Keywords: | inflation persistence, retail sector, regions |
| JEL: | E0 E30 R0 R10 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:4/2010&r=cba |
| By: | Efrem Castelnuovo (University of Padua); Luciano Greco (University of Padua); Davide Raggi (University of Bologna) |
| Abstract: | This paper estimates Taylor rules featuring instabilities in policy parameters, switches in policy shocks' volatility, and time-varying trend inflation using post-WWII U.S. data. The model embedding the stochastic target performs better in terms of data-fit and identification of the changes in the FOMC's chairmanships. Policy breaks are found not to be synchronized with variations in policy shocks' volatilities. Finally, we detect a negative correlation between systematic monetary policy aggressiveness and inflation gap persistence. |
| JEL: | E52 E61 E62 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0109&r=cba |
| By: | McCarthy, Colm |
| Keywords: | Financial crises--Ireland; Fiscal policy--Ireland; |
| Date: | 2009–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ucddub:urn:hdl:10197/1528&r=cba |
| By: | Hendrickson, Joshua |
| Abstract: | The Great Moderation is often characterized by the decline in the variability of output and inflation from earlier periods. While a multitude of explanations for the Great Moderation exist, notable research has focused on the role of monetary policy. Specifically, early evidence suggested that the increased stability has been associated with monetary policy that responded much more strongly to rising inflation. Recent evidence casts doubt on this change in monetary policy. An alternative hypothesis is that the change in monetary policy was the result of a change in doctrine; specifically the rejection of the view that inflation was largely a cost-push phenomenon. As a result, this alternative hypothesis suggests that the change in monetary policy beginning in 1979 is reflected in the Federal Reserve's response to movements in nominal income rather than inflation as previously argued. I provide evidence for this hypothesis by estimating the parameters of a monetary policy rule in which policy adjusts to forecasts of nominal GDP for the pre- and post-Volcker eras. Finally, I embed the rule in two dynamic stochastic general equilibrium models with gradual price adjustment to determine whether the overhaul of doctrine can explain the reduction in the volatility of inflation and the output gap. |
| Keywords: | monetary policy rules; real-time data; Greenbook forecasts; nominal income target; Great Moderation |
| JEL: | E51 E30 E58 |
| Date: | 2010–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20346&r=cba |
| By: | Jean-Philippe Cayen; Donald Coletti; Rene Lalonde; Philipp Maier |
| Abstract: | We use a novel approach to identify economic developments that drive exchange rates in the long run. Using a panel of six quarterly U.S. bilateral real exchange rates – Australia, Canada, the euro, Japan, New Zealand and the United Kingdom – over the 1980-2007 period, a dynamic factor model points to two common factors. The first factor is driven by U.S. shocks, and cointegration analysis points to a long-run statistical relationship with the U.S. debt-to-GDP ratio, relative to all other countries in our sample. The second common factor is driven by commodity prices. Incorporating these relationships directly into a state-space model, we find highly significant coefficients. Then, we decompose the historical variation of each exchange rate into U.S. shocks, commodities, and a domestic component. We find a strong role for economic fundamentals: Changes in the two common factors, which are driven by the (relative) U.S. debt-to-GDP ratio and commodity prices, can explain between 36 and 96 per cent of individual countries' exchange rates in our panel. |
| Keywords: | Exchange rates; Econometric and statistical methods |
| JEL: | J31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:10-5&r=cba |
| By: | Keiichi Morimoto (Graduate School of Economics, Osaka University) |
| Abstract: | How many members should committees consist of? This paper addresses this question in view of imperfect information and coordination behavior among the members, which is a new approach alternative to introducing information acquisition cost. First, using a simple model, I show that the existence of the coordination motive dismisses Condorcetfs (1785) suggestion and the finite optimal size of the committee is determined. Second, I provide an application of the mechanism to monetary policy committees in a basic New Keynesian model. This example will inspire other applications to policy issues in the dynamic stochastic general equilibrium framework. |
| Keywords: | committee, Condorcet jury theorem, coordination, higher order beliefs monetary policy |
| JEL: | D71 D84 E58 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1002&r=cba |
| By: | Monica Billio; Roberto Casarin |
| Abstract: | We propose a new class of Markov-switching (MS) models for business cycle analysis. As usually done in the literature, we assume that the MS latent factor is driving the dynamics of the business cycle but the transition probabilities can vary randomly over time. Transition probabilities are generated by random processes which may account for the stochastic duration of the regimes and for possible stochastic relations between the MS probabilities and some explanatory variables, such as autoregressive components and exogenous variables. The presence of latent factors and nonlinearities calls for the use of simulation-based inference methods. We propose a full Bayesian inference approach which can be naturally combined with Monte Carlo methods. We discuss the choice of the priors and a Markov-chain Monte Carlo (MCMC) algorithm for estimating the parameters and the latent variables. We provide an application of the model and of the MCMC procedure to data of Euro area. We also carry out a real-time comparison between different models by employing sequential Monte Carlo methods and some concordance statistics, which are widely used in business cycle analysis. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ubs:wpaper:1002&r=cba |
| By: | Josa-Fombellida, R.; Rincón-Zapatero, Juan Pablo |
| Abstract: | In this paper we study the optimal management of an aggregated pension fund of defined benefit type, in the presence of a stochastic interest rate. We suppose that the sponsor can invest in a savings account, in a risky stock and in a bond with the aim of minimizing deviations of the unfunded actuarial liability from zero along a finite time horizon. We solve the problem by means of optimal stochastic control techniques and analyze the influence on the optimal solution of some of the parameters involved in the model. |
| Keywords: | Pension funds; Stochastic control; Optimal portfolio; Stochastic interest rate; |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:carlos:info:hdl:10016/5581&r=cba |
| By: | Miettinen, Topi (Stockholm Institute of Transition Economics) |
| Abstract: | This paper introduces the payoff-confirming analogy-based expectation equilibrium (PCABEE) as a way to refine the set of analogy-based equilibria and the associated admissible analogy partitions. In addition to the actions of others, own payoff history provides information about others’ strategies but, yet, non-Bayesian Nash equilibria may exist both with an incorrect and a correct prior. We provide general conditions when this happens. Two stylized employer-employee interactions, one with a correct and one with an incorrect prior, are provided illustrating how PCABEE can be used to analyze robust stereotypes and how incorrect such stereotypes may lead to discrimination. |
| Keywords: | analogy expectations; bounded rationality; curse; learning; discrimination; stereotypes |
| JEL: | C72 D82 |
| Date: | 2009–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hasite:0007&r=cba |
| By: | Coccia Mario (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy) |
| Abstract: | The purpose of this essay is to determine the forecast horizon of the fifth, sixth and seventh long wave. As the period of each long wave can change according to the data, it has been used a deterministic approach, based on historical chronologies of USA and UK economies worked out by several scholars, to determine average timing, period and forecast error of future long waves. In addition, the analysis shows that long waves have average upwave period longer than average downwave one. This result is also confirmed by US Business Cycles that have average contractions shorter than expansions phase over time. |
| Keywords: | Forecast Horizon, Long Waves, Kondratieff Waves, Business Cycles, Asymmetric Path |
| JEL: | E30 E37 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:csc:cerisp:200904&r=cba |
| By: | Elena-Ivona Dumitrescu (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Christophe Hurlin (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Bertrand Candelon (Laboratoire d'Economie d'Orléans - Université d'Orléans - CNRS : FRE2783) |
| Abstract: | This paper proposes a new statistical framework originating from the traditional credit- scoring literature, to evaluate currency crises Early Warning Systems (EWS). Based on an assessment of the predictive power of panel logit and Markov frameworks, the panel logit model is outperforming the Markov switching specifications. Furthermore, the introduction of forward-looking variables clearly improves the forecasting properties of the EWS. This improvement confirms the adequacy of the second generation crisis models in explaining the occurrence of crises. |
| Keywords: | currency crisis; Early Warning System; credit-scoring |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00450050_v1&r=cba |
| By: | Eduardo Levy-Yeyati; Tomás Williams |
| Abstract: | While many studies document the influence of global liquidity and risk aversion on emerging markets spreads, less is known about their link with the US yield curve –a point that becomes more relevant at today´s historically low US rates. In this note, we examine the channels through which emerging markets spreads could be affected by changes in the US Treasury curve, and their economic importance in light of realistic scenarios, accounting for the differential response from investment and non investment grade economies, and during periods of financial distress. We find that a UST curve steepening (e.g., due to an oversupply of Treasuries) represents a more important risk factor for emerging market spreads than a monetary policy tightening. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpbsdt:2010-02&r=cba |
| By: | Rakesh Mohan; Muneesh Kapur (Asian Development Bank Institute) |
| Abstract: | Capital flows to emerging market economies (EMEs) have been characterized by high volatility since the 1980s. In recent years (especially since 2003), although gross as well as net capital flows to the EMEs have increased, they could not be absorbed domestically. Overall, savings have flowed uphill from EMEs to advanced economies, challenging the conventional view that capital flows to EMEs are always beneficial through augmentation of their resources leading to greater investment. Full capital account liberalization can impart avoidable volatility and have an adverse impact on growth prospects of EMEs. Available evidence is strongly in favor of a calibrated and well-sequenced approach to opening up the capital account and its active management, along with complementary reforms in other sectors. Greater caution is needed in the liberalization of debt flows. Despite much advice to the contrary, most EMEs manage their capital accounts actively to cushion their economies from undue volatility, including interventions in the foreign exchange markets accompanied by sterilization. Sound macroeconomic and financial policies―accompanied by prudent capital account management, greater exchange rate flexibility, purposive use of prudential regulation, and continued financial market development practiced by most Asian EMEs over the past decade―have cushioned their economies from the current global financial crisis that started in 2007. They have successfully achieved a virtuous circle of continuing growth, low and stable inflation, and financial stability. How these elements can be best combined will depend on the country and on the period: There is no “one size fits all.†Such a discretionary approach does put a great premium on the skill of policymakers and can run the risk of markets perceiving central bank actions becoming uncomfortably unpredictable. Such risk is mitigated by a record of successful management. |
| Keywords: | Emerging Market Economies, Liberalization, Regulation, Capital Flows |
| JEL: | E42 E44 E52 E58 F3 F4 G15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:2024&r=cba |
| By: | Ivan O. Kitov |
| Abstract: | The evolution of inflation, p(t), and unemployment, UE(t), in Japan has been modeled. Both variables were represented as linear functions of the change rate of labor force, dLF/LF. These models provide an accurate description of disinflation in the 1990s and a deflationary period in the 2000s. In Japan, there exists a statistically reliable (R2=0.68) Phillips curve, which is characterized by a negative relation between inflation and unemployment and their synchronous evolution: UE(t) = -0.94p(t) + 0.045. Effectively, growing unemployment has resulted in decreasing inflation since 1982. A linear and lagged generalized relationship between inflation, unemployment and labor force has been also obtained for Japan: p(t) = 2.8*dLF(t)/LF(t) + 0.9*UE(t) - 0.0392. Labor force projections allow a prediction of inflation and unemployment in Japan: CPI inflation will be negative (between -0.5% and -1% per year) during the next 40 years. Unemployment will increase from ~4.0% in 2010 to 5.3% in 2050. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1002.0277&r=cba |
| By: | Arturo Galindo; Alejandro Izquierdo; Liliana Rojas-Suarez |
| Abstract: | This paper explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and 2008. It is found that financial integration amplifies the impact of international financial shocks on aggregate credit and interest rate fluctuations. Nonetheless, the net impact of integration on deepening credit markets dominates for the large majority of states of nature. The paper also uses a detailed bank-level dataset that covers more than 500 banks for a similar time period to explore the role of financial integration—captured through the participation of foreign banks—in propagating external shocks. It is found that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. This does not hold for all foreign banks. Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates. |
| Keywords: | Foreign Banks, Credit, Interest Rates, Financial Shocks |
| JEL: | F36 G0 G21 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4651&r=cba |