|
on Central Banking |
| By: | Alberto F. Alesina; Andrea Stella |
| Abstract: | In this paper we critically review the literature on the political economy of monetary policy, with an eye on the questions raised by the recent financial crisis. We begin with a discussion of rules versus discretion. We then examine the issue of Central Banks independence both in normal times and in times of crisis. Then we review the literature of electoral manipulation of policies. Finally we address international institutional issues concerning the feasibility, optimality and political sustainability of currency unions in which more than one country share the same currency. A brief review of the Euro experience concludes the paper. |
| JEL: | E52 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15856&r=cba |
| By: | Klaus Adam (Mannheim University and CEPR (E-mail: adam@mail. uni-mannheim.de)); Albert Marcet (London School of Economics and CEPR (E-mail: a.marcet@lse.ac.uk)) |
| Abstract: | We show how low-frequency boom and bust cycles in asset prices can emerge from Bayesian learning by investors. Investors rationally maximize infinite horizon utility but hold subjective priors about the asset return process that we allow to differ infinitesimally from the rational expectations prior. Bayesian updating of return beliefs then gives rise to self-reinforcing return optimism that results in an asset price boom. The boom endogenously comes to an end because return optimism causes investors to make optimistic plans about future consumption. The latter reduces the demand for assets that allow to intertemporally transfer resources. Once returns fall short of expectations, investors revise return expectations downward and set in motion a self-reinforcing price bust. In line with available survey data, the learning model predicts return optimism to comove positively with market valuation. In addition, the learning model replicates the low frequency behavior of the U.S. price dividend ratio over the period 1926-2006. |
| JEL: | G12 D84 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:10-e-02&r=cba |
| By: | Craig Burnside; Bing Han; David Hirshleifer; Tracy Yue Wang |
| Abstract: | We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus, when agents observe a signal of higher future inflation, the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate. The model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behavior of forward and spot exchange rates. Our approach is also consistent with the availability of profitable carry trade strategies. |
| JEL: | F31 G15 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15866&r=cba |
| By: | Jean Tirole |
| Abstract: | The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyses optimal combinations thereof; it stresses the need for macro-prudential policies. |
| Keywords: | liquidity, contagion, bailouts, regulation |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:303&r=cba |
| By: | Douglas W Diamond |
| Abstract: | Is there any need to “clean” up a banking system in the midst of a crisis, by closing or recapitalizing weak banks and taking bad assets off bank balance sheets, or can one wait till the crisis is over? We argue that an “overhang” of impaired banks that may be forced to sell assets soon can reduce the current price of illiquid assets sufficiently that weak banks have no interest in selling them. Anticipating a potential future fire sale, cash rich buyers have high expected returns to holding cash, which also reduces their incentive to lock up money in term loans. The potential for a worse fire sale than necessary, as well as the associated decline in credit origination, could make the crisis worse, which is one reason it may make sense to clean up the system even in the midst of the crisis. We discuss alternative ways of cleaning up the system, and the associated costs and benefits. |
| Keywords: | fire sales, illiquid securities, bank fragility, prudential policy |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:305&r=cba |
| By: | Stephen Cecchetti; Madhusudan Mohanty; Fabrizio Zampolli |
| Abstract: | Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. |
| Keywords: | public debt, fiscal deficit, age-related spending, inflation, interest rates, default risk |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:300&r=cba |
| By: | Jordi Galí |
| Abstract: | Much recent research has focused on the development and analysis of extensions of the New Keynesian framework that model labor market frictions and unemployment explicitly. The present paper describes some of the essential ingredients and properties of those models, and their implications for monetary policy. |
| JEL: | E32 E52 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15871&r=cba |
| By: | Zheng Liu; Pengfei Wang; Tao Zha |
| Abstract: | Previous studies on financial frictions have been unable to establish the empirical significance of credit constraints in macroeconomic fluctuations. This paper argues that the muted impact of credit constraints stems from the absence of a mechanism to explain the observed persistent comovements between housing prices and business investment. We develop such a mechanism by incorporating two key features into a dynamic stochastic general equilibrium model: We identify shocks that shift the demand for collateral assets and allow productive agents to be credit-constrained. A combination of these two features enables our model to successfully generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through credit constraints. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2010-01&r=cba |
| By: | Marcus Miller; Joseph E. Stiglitz |
| Abstract: | An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to ‘overshoot’ equilibrium when an asset bubble bursts—threatening widespread insolvency and what Richard Koo calls a ‘balance sheet recession’. Besides interest rates cuts, asset purchases and capital restructuring are key to crisis resolution. The usual bankruptcy procedures for doing this fail to internalise the price effects of asset ‘fire-sales’ to pay down debts, however. We discuss how official intervention in the form of ‘super’ Chapter 11 actions can help prevent asset price correction causing widespread economic disruption. |
| JEL: | E32 G21 G32 G33 G34 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15817&r=cba |
| By: | Troy Davig; Eric M. Leeper; Todd B. Walker |
| Abstract: | A rational expectations framework is developed to study the consequences of alternative means to resolve the "unfunded liabilities" problem--unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century. Beliefs based on that distribution determine the existence of and the nature of equilibrium. We consider policies that in expectation combine reaching a fiscal limit, some distorting taxation, modest inflation, and some reneging on the government's promised transfers. In the equilibrium, inflation-targeting monetary policy cannot successfully anchor expected inflation. Expectational effects are always present, but need not have large impacts on inflation and interest rates in the short and medium runs. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-09&r=cba |
| By: | Alberto Martin; Jaume Ventura |
| Abstract: | We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibrium dispersion in the rates of return to investment. During bubbly episodes, unproductive investors demand bubbles while productive investors supply them. Because of this, bubbly episodes channel resources towards productive investment raising the growth rates of capital and output. The model also illustrates that the existence of bubbly episodes requires some investment to be dynamically inefficient: otherwise, there would be no demand for bubbles. This dynamic inefficiency, however, might be generated by an expansionary episode itself. |
| JEL: | E32 E44 O40 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15870&r=cba |
| By: | Manfred Gilli; Stefan Große; Enrico Schumann |
| Abstract: | The Nelson–Siegel–Svensson model is widely-used for modelling the yield curve, yet many authors have reported ‘numerical difficulties’ when calibrating the model. We argue that the problem is twofold: firstly, the optimisation problem is not convex and has multiple local optima. Hence standard methods that are readily available in statistical packages are not appropriate. We implement and test an optimisation heuristic, Differential Evolution, and show that it is capable of reliably solving the model. Secondly, we also stress that in certain ranges of the parameters, the model is badly conditioned, thus estimated parameters are unstable given small perturbations of the data. We discuss to what extent these difficulties affect applications of the model. |
| Date: | 2010–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:com:wpaper:031&r=cba |
| By: | Pier Francesco Asso; George A. Kahn; Robert Leeson |
| Abstract: | The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in response to an increase in inflation. And, various versions of the Taylor rule have been incorporated into macroeconomic models that are used at central banks to understand and forecast the economy. ; This paper examines how the Taylor rule is used as an input in monetary policy deliberations and decision-making at central banks. The paper characterizes the policy environment at the time of the development of the Taylor rule and describes how and why the Taylor rule became integrated into policy discussions and, in some cases, the policy framework itself. Speeches by policymakers and transcripts and minutes of policy meetings are examined to explore the practical uses of the Taylor rule by central bankers. While many issues remain unresolved and views still differ about how the Taylor rule can best be applied in practice, the paper shows that the rule has advanced the practice of central banking. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-05&r=cba |
| By: | Hyun Song Shin |
| Abstract: | Securitization was meant to disperse credit risk to those who were better able to bear it. In practice, securitization appears to have concentrated the risks in the financial intermediary sector itself. This paper outlines an accounting framework for the financial system for assessing the impact of securitization on financial stability. If securitization leads to the lengthening of intermediation chains, then risks becomes concentrated in the intermediary sector with damaging consequences for financial stability. Covered bonds are one form of securitization that do not fall foul of this principle. I discuss the role of countercyclial capital requirements and the Spanish-style statistical provisioning in mitigating the harmful effects of lengthening intermediation chains. |
| Keywords: | leverage, financial intermediation chains, financial stability |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:304&r=cba |
| By: | Stephen G. Cecchetti; Craig S. Hakkio |
| Abstract: | Transparency is one of the biggest innovations in central bank policy of the past quarter century. Modern central bankers believe that they should be as clear about their objectives and actions as possible. However, is greater transparency always beneficial? Recent work suggests that when private agents have diverse sources of information, public information can cause them to overreact to the signals from the central bank, leading the economy to be too sensitive to common forecast errors. Greater transparency could be destabilizing. While this theoretical result has clear intuitive appeal, it turns on a combination of assumptions and conditions, so it remains to be established that it is of empirical relevance. ; In this paper we study the degree to which increased information about monetary policy might lead to individuals coordinating their forecasts. Specifically, we estimate a series of simple models to measure the impact of inflation targeting on the dispersion of private sector forecasts of inflation. Using a panel data set that includes 15 countries over 20 years we find no convincing evidence that adopting an inflation targeting regime leads to a reduction in the dispersion of private sector forecasts of inflation. While for some specifications adoption of inflation target does seem to reduce the standard deviation of inflation forecasts, the impact is rarely precise and always small. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-01&r=cba |
| By: | Russell Cooper; John Haltiwanger; Jonathan L. Willis |
| Abstract: | This paper studies capital adjustment at the establishment level. Our goal is to characterize capital adjustment costs, which are important for understanding both the dynamics of aggregate investment and the impact of various policies on capital accumulation. Our estimation strategy searches for parameters that minimize ex post errors in an Euler equation. This strategy is quite common in models for which adjustment occurs in each period. Here, we extend that logic to the estimation of parameters of dynamic optimization problems in which non-convexities lead to extended periods of investment inactivity. In doing so, we create a method to take into account censored observations stemming from intermittent investment. This methodology allows us to take the structural model directly to the data, avoiding time-consuming simulation-based methods. To study the effectiveness of this methodology, we first undertake several Monte Carlo exercises using data generated by the structural model. We then estimate capital adjustment costs for U.S. manufacturing establishments in two sectors. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-04&r=cba |
| By: | Shigenori Shiratsuka (Associate Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shigenori.shiratsuka boj.or.jp)); Wataru Takahashi (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: wataru.takahashi boj.or.jp)); Kozo Ueda (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda boj.or.jp)) |
| Keywords: | sociate Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shigenori.shiratsuka boj.or.jp) |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:09-e-20&r=cba |
| By: | Giuseppe Bertola (Università di Torino, Dipartimento di Economia, via Po 53, 10124 Torino, Italy.); Aurelijus Dabusinskas (Eesti Pank, Estonia pst. 13, 15095 Tallinn, Estonia.); Marco Hoeberichts (De Nederlandsche Bank, P.O. Box 98, 1000 AB Amsterdam, The Netherlands.); Mario Izquierdo (Banco de España, C/ Alcalá 48, 28014 Madrid, Spain.); Claudia Kwapil (Oesterreichische Nationalbank, Otto-Wagner-Platz 3, 1090 Vienna, Austria.); Jérémi Montornès (Banque de France, DGS-DSMF-SICOS, 37 rue du Louvre, 75002 Paris, France.); Daniel Radowski (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.) |
| Abstract: | This paper analyses information from survey data collected in the framework of the Eurosystem’s Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend – in theoretically sensible ways – on the intensity of competition in firms’ product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the passthrough of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger. JEL Classification: J31, J38, P50. |
| Keywords: | Wage bargaining, Labour-market institutions, Survey data, European Union. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101164&r=cba |
| By: | Kendall, Jake; Mylenko, Nataliya; Ponce, Alejandro |
| Abstract: | This paper introduces a new set of financial access indicators for 139 countries across the globe and describes the results of a preliminary analysis of this data set. The new data set builds on previous work using a similar methodology. The new data set features broader country coverage and greater disaggregation by type of financial product and by type of institution supplying the product -- commercial banks, specialized state run savings and development banks, banks with mutual ownership structure (such as cooperatives), and microfinance institutions. The authors use the data set to conduct a rough estimation of the number of bank accounts in the world (6.2 billion) as well as the number of banked and unbanked individuals. In developed countries, they estimate 3.2 accounts per adult and 81 percent of adults banked. By contrast, in developing countries, they estimate only 0.9 accounts per adult and 28 percent banked. In regression analysis, they find that measures of development and physical infrastructure are positively associated with the indicators of deposit account, loan, and branch penetration. |
| Keywords: | Access to Finance,Banks&Banking Reform,Debt Markets,Emerging Markets,E-Business |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5253&r=cba |
| By: | Jarkko Jääskelä (Reserve Bank of Australia); Rebecca McKibbin (Reserve Bank of Australia) |
| Abstract: | Expectations of the future play a key role in the transmission of monetary policy. Over recent years, a lot of theoretical and applied macroeconomic research has been based on the assumption of rational expectations. However, estimated models based on this assumption typically fail to capture the dynamics of the economy unless mechanical sources of persistence, such as habit formation in consumption and/or indexation to past prices, are imposed. This paper develops and estimates a small open economy model for Australia assuming two different types of expectations: rational expectations and learning. Learning – where expectations are formed by extrapolating from the historical data – can be an alternative means to generate the persistence observed in the data. The paper has four key findings. First, learning does not reduce the importance of conventional mechanical forms of persistence. Second, despite this, the model with learning is able to generate real exchange rate dynamics that are consistent with empirical models but which are absent in standard theoretical models. Third, there is some tentative evidence that learning is preferred over rational expectations in terms of fitting the data. Fourth, since the adoption of inflation targeting, agents appear to be using a longer history of data to form their expectations, consistent with greater stability of inflation. |
| Keywords: | Learning; expectations; new Keynesian model; regime shifts |
| JEL: | E32 E52 E63 F41 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2010-02&r=cba |
| By: | Dellas, H.; Diba, B.; Loisel, O. |
| Abstract: | This paper incorporates banks as well as frictions in the market for bank capital into a standard New Keynesian model and considers the positive and normative implications of various financial shocks. It shows that the frictions matter significantly for the effects of the shocks and the properties of optimal monetary and fiscal policy. For instance, for shocks that increase banks' demand for liquidity, optimal monetary policy accepts an output contraction while it would not in the absence of the frictions (or under suitably conducted fiscal policy). We find that optimal monetary policy can be approximated by a simple interest-rate rule targeting inflation; and it also allows large adjustments in the money supply, a property reminiscent of Poole's analysis. |
| Keywords: | Financial frictions, banking, optimal policy |
| JEL: | E2 E4 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:277&r=cba |
| By: | Filippo Taddei |
| Abstract: | This paper shows that private information may be crucial in explaining the relationship between liquidity, investment and economic fluctuations. First, it defines liquidity in a way that is clearly connected to investment and output. Second, it models economies where privately informed entrepreneurs issue debt to fund their investment opportunities and identifies a theoretically based, empirically usable, and macroeconomic relevant measure of liquidity of the economy: the cross-firm dispersion in debt yields. Finally, it rationalizes one novel stylized fact regarding the US corporate bond market: the positive relationship between the proposed meaure of liquidity - the cross-firm dispersion in the "yields to maturity" on newly issued publicly traded debt - and subsequent aggregate economic activity. |
| Keywords: | Liquidity; private information; robust pooling equilibrium; bond yield |
| JEL: | E2 E3 G14 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:138&r=cba |
| By: | James Mitchell; Garratt, A., Vahey, S.P. |
| Abstract: | We propose a methodology for producing density forecasts for the output gap in real time using a large number of vector autoregessions in inflation and output gap measures. Density combination utilizes a linear mixture of experts framework to produce potentially non-Gaussian ensemble densities for the unobserved output gap. In our application, we show that data revisions alter substantially our probabilistic assessments of the output gap using a variety of output gap measures derived from univariate detrending filters. The resulting ensemble produces well-calibrated forecast densities for US inflation in real time, in contrast to those from simple univariate autoregressions which ignore the contribution of the output gap. Broadening our empirical analysis to consider output gap measures derived from linear time trends, as well as more flexible trends, generates very different point estimates of the output gap. Combining evidence from both linear trends and more flexible univariate detrending filters induces strong multi-modality in the predictive densities for the unobserved output gap. The peaks associated with these two detrending methodologies indicate output gaps of opposite sign for some observations, reflecting the pervasive nature of model uncertainty in our US data. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:342&r=cba |
| By: | Klaus Adam; Roberto M. Billi |
| Abstract: | We study interactions between monetary policy, which sets nominal interest rates, and fiscal policy, which levies distortionary income taxes to finance public goods, in a standard, sticky-price economy with monopolistic competition. Policymakers? inability to commit in advance to future policies gives rise to excessive inflation and excessive public spending, resulting in welfare losses equivalent to several percent of consumption each period. We show how appointing a conservative monetary authority, which dislikes inflation more than society does, can considerably reduce these welfare losses and that optimally the monetary authority is predominantly concerned about inflation. Full conservatism, i.e., exclusive concern about inflation, entirely eliminates the welfare losses from discretionary monetary and fiscal policymaking, provided monetary policy is determined after fiscal policy each period. Full conservatism, however, is severely suboptimal when monetary policy is determined simultaneously with fiscal policy or before fiscal policy each period. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-10&r=cba |
| By: | Willem Van Zandweghe; Alexander L. Wolman |
| Abstract: | We study discretionary equilibrium in the Calvo pricing model for a monetary authority that chooses the money supply. The steady-state inflation rate is above eight percent for a baseline calibration, and it varies non-monotonically with the degree of price stickiness. If the initial condition involves inflation higher than steady state, discretionary policy generates an immediate drop in inflation followed by a gradual increase to the steady state. Unlike the two-period Taylor model, discretionary policy in the Calvo model does not accommodate predetermined prices in a way that inevitably leads to multiple private-sector equilibria. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-06&r=cba |
| By: | Fabrizio Coricelli (Centre d'Economie de la Sorbonne and CEPR); Isabelle Roland (LSE) |
| Abstract: | The paper develops a simple model on the asymmetric role of credit markets in output fluctuations. When credit markets are underdeveloped and enterprise activity is financed by trade credit, shocks may induce a break-up of credit and production chains, leading to sudden and sharp contractions. The development of a banking sector can reduce the probability of such collapses and hence plays a crucial role in softening output declines. However, the banking sector becomes a shock amplifier when shocks originate in the financial sector. Using industry-level data across a large cross-section of countries, we provide evidence in support of the model's predictions. |
| Keywords: | Credit chains, trade credit, recessions, financial development. |
| JEL: | O40 F30 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10022&r=cba |
| By: | Vlieghe, Gertjan (Brevan Howard) |
| Abstract: | I develop a model for monetary policy analysis that features significant feedback from asset prices to macroeconomic quantities. The feedback is caused by credit market imperfections, which dynamically affect how efficiently labour and capital are being used in aggregate. I then analyse what implications this mechanism has for monetary policy. The paper offers three insights. First, the monetary transmission mechanism works not only via nominal rigidities but also via a reallocation of productive resources away from the most productive agents. Second, following an adverse productivity shock there is a dynamic trade-off between the immediate fall in output, which is an efficient response to the productivity fall, and the fall in output thereafter, which is caused by a reallocation of resources away from the most productive agents. The more the initial output fall is dampened with a temporary rise in inflation, the more the adverse future effects of the reallocation of resources are mitigated. Third, in a full welfare-based analysis of optimal monetary policy I show that it is optimal to have some inflation variability, even if the only shocks in the economy are productivity shocks. The optimal variability of inflation is small, but the costs of stabilising inflation too aggressively can be large. |
| JEL: | E44 E52 |
| Date: | 2010–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0385&r=cba |
| By: | Juan Angel García (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Thomas Werner (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the link between the perceived inflation risks in macroeconomic forecasts and the inflation risk premia embodied in financial instruments. We first provide some stylized facts about the term structure of inflation compensation, inflation expectations and inflation risk premia in the euro area bond market. Latent factor models like ours fit data well, but are often critisized for lacking economic interpretation. Using survey inflation risks, we show that perceived asymmetries in inflation risks help interpret the dynamics of long-term inflation risk premia, even after controlling for a large number of macro and financial factors. JEL Classification: G12, E31, E43. |
| Keywords: | Affine term structure models, state-space modelling, inflation compensation, inflation risk premia, inflation risks. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101162&r=cba |
| By: | Sylvain Leduc; Keith Sill |
| Abstract: | Using survey-based measures of future U.S. economic activity from the Livingston Survey and the Survey of Professional Forecasters, the authors study how changes in expectations, and their interaction with monetary policy, contribute to fluctuations in macroeconomic aggregates. They find that changes in expected future economic activity are a quantitatively important driver of economic fluctuations: a perception that good times are ahead typically leads to a significant rise in current measures of economic activity and inflation. The authors also find that the short-term interest rate rises in response to expectations of good times as monetary policy tightens. Their results provide quantitative evidence on the importance of expectations-driven business cycles and on the role that monetary policy plays in shaping them. |
| Keywords: | Economic forecasting ; Monetary policy ; Business cycles |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:10-6&r=cba |
| By: | Faia, Ester (Goethe University Frankfurt); Lechthaler, Wolfgang (Kiel Institute for the World Economy); Merkl, Christian (Kiel Institute for the World Economy) |
| Abstract: | Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically, a currency area calibrated to the European Monetary Union) with labour market frictions in the form of labour turnover costs and workers’ heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cuts and hiring subsidies deliver larger multipliers, as they reduce distortions in sclerotic labour markets; short-time work (German "Kurzarbeit") returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with non-walrasian labour markets. |
| Keywords: | fiscal multipliers, fiscal packages, labour market frictions |
| JEL: | E62 H30 J20 H20 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4849&r=cba |
| By: | Wanfeng Yan; Ryan Woodard; Didier Sornette |
| Abstract: | We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with a hazard rate describing the collective buying pressure of noise traders. The price fall occurring during a transient negative bubble can be interpreted as an effective random downpayment that rational agents accept to pay in the hope of profiting from the expected occurrence of a possible rally. We validate the model by showing that it has significant predictive power in identifying the times of major market rebounds. This result is obtained by using a general pattern recognition method which combines the information obtained at multiple times from a dynamical calibration of the JLS model. Error diagrams, Bayesian inference and trading strategies suggest that one can extract genuine information and obtain real skill from the calibration of negative bubbles with the JLS model. We conclude that negative bubbles are in general predictably associated with large rebounds or rallies, which are the mirror images of the crashes terminating standard bubbles. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1003.5926&r=cba |
| By: | Ray Barrell; E. Philip Davis; Iana Liadze; D, Karim |
| Abstract: | Given the magnitude of “global imbalances” in the run-up to the subprime crisis, we test for an impact of the current account balance on the probability of banking crises in OECD countries since 1980. This variable has been neglected in most early warning models to date, despite its prominence in theory and in case studies of crises. We find that a current account variable is significant in a parsimonious logit model also featuring bank capital adequacy, liquidity and changes in house prices, thus showing the patterns immediately preceding the subprime crisis were not unprecedented. Our model, even if estimated over an earlier period such as 1980-2003, could have helped authorities to forecast the subprime crisis accurately and take appropriate regulatory measures to reduce its impact. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:351&r=cba |
| By: | Yener Altunbas (Centre for Banking and Financial Studies, Bangor University, Bangor, Gwynedd LL57 2DG, United Kingdom.); Leonardo Gambacorta (Bank for International Settlements, Monetary and Economics Department, Centralbahnplatz 2, CH-4002 Basel, Switzerland.); David Marqués-Ibáñez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the relationship between short-term interest rates and bank risk. Using a unique database that includes quarterly balance sheet information for listed banks operating in the European Union and the United States in the last decade, we find evidence that unusually low interest rates over an extended period of time contributed to an increase in banks' risk. This result holds for a wide range of measures of risk, as well as macroeconomic and institutional controls. JEL Classification: E44, E55, G21. |
| Keywords: | bank risk, monetary policy, credit crisis. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101166&r=cba |
| By: | Nicholas Oulton; Ana Rincon-Aznar |
| Abstract: | We employ the EU KLEMS database to estimate the real rate of return to capital in 14 countries (11 in the EU, three outside the EU) in 10 branches of the market economy plus the market economy as a whole. Our measure of capital is an aggregate over seven types of asset: three ICT assets and four non-ICT assets. The real rate of return in the market economy does not vary very much across countries, the extremes being Spain (high) and Italy (low). The real rate appears to be trendless in most countries. Within each country however, the rate varies widely across the 10 branches, often being implausibly high or low. We also estimate the growth of capital services by two different methods: ex-post and ex-ante, and the contribution of capital to output growth by three methods: ex-post, ex-ante and hybrid. The ex-ante method uses an estimate of the required rate of return for each country instead of the actual, average rate of return to calculate user costs and also employs the expected growth of asset prices rather than the actual growth. These estimates are derived from exactly the same data as for the ex-post method, ie without any extraneous data being employed. For estimating the contribution of capital to output growth, the ex-ante method uses ex-ante profit as the weight, while both the ex-post and the hybrid method use ex-post profit. We find that the three methods produce very similar results at the market economy level. But differences are much larger at the branch level, particularly between the ex-post and ex-ante methods. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:347&r=cba |
| By: | A. H. Ahmad (Dept of Economics, Loughborough University); Eric J. Pentecost (Dept of Economics, Loughborough University) |
| Abstract: | The impact of terms of trade shocks on a country’s output and price level are, according to economic theory, expected to vary according to the de facto exchange rate regime. This paper tests this hypothesis how terms of trade shocks impact on 22 African countries, which operate different de facto exchange rate regimes, using a structural VAR with long-run restrictions, over the period from 1980 to 2007. The empirical findings support the view that the exchange rate regime matters as to how countries respond to exogenous external shocks like terms of trade shocks, in that output variation is greater for countries with fixed regimes, while for flexible regime countries real exchange rate variation reduces the need for output variability. |
| Keywords: | Terms of Trade, Exchange Rate Regimes, Structural VARs |
| JEL: | F13 F31 F41 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2010_08&r=cba |
| By: | Martin Fukac; Adrian Pagan |
| Abstract: | In this paper we review the evolution of macroeconomic modelling in a policy environment that took place over the past sixty years. We identify and characterise four generations of macro models. Particular attention is paid to the fourth generation -- dynamic stochastic general equilibrium models. We discuss some of the problems in how these models are implemented and quantified. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-08&r=cba |
| By: | Martin Fukac |
| Abstract: | Dynamic stochastic general equilibrium (DSGE) models have become a widely used tool for policymakers. This paper modifies the global identification theory used for structural vector autoregressions, and applies it to DSGE models. We use this theory to check whether a DSGE model structure allows for unique estimates of structural shocks and their dynamic effects. The potential cost of a lack of identification for policy oriented models along that specific dimension is huge, as the same model can generate a number of contrasting yet theoretically and empirically justifiable recommendations. The problem and methodology are illustrated using a simple New Keynesian business cycle model. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp10-07&r=cba |
| By: | Silvia Lui; James Mitchell; Martin Weale |
| Abstract: | This paper assesses the utility of qualitative expectational survey data at the firm-level in terms of both their ability to anticipate firms’ subsequent retrospective, but qualitative, reports of their performance but also these same firms’ quantitative answers. The assessment requires access to a unique panel dataset which matches firms’ responses to a leading qualitative tendency survey conducted by the Confederation of British Industry with these same firms’ quantitative replies to a different survey carried out by the Office for National Statistics. We employ nonparametric tests of the so-called “best-case scenario” and introduce a weaker test for the coherence between these two surveys and test whether the qualitative data contain a(ny) signal about the quantitative data. We find that while firms’ qualitative expectations are “best-case” predictions of their qualitative assessment of their output growth they do not contain a signal about the quantitative data. But we can reject the null hypothesis of noise for the retrospective qualitative data. We discuss this apparent paradox and suggest that qualitative business survey data are more useful for nowcasting than forecasting. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:343&r=cba |
| By: | Junko Koeda (Faculty of Economics, University of Tokyo); Ryo Kato (Institute for Monetary and Economic Studies, Bank of Japan) |
| Abstract: | Using a macroeconomic perspective, we examine the effect of uncertainty arising from policy-shock volatility on yield-curve dynamics. Many macro-finance models assume that policy shocks are homoskedastic, while observed policy shock processes are significantly time varying and persistent. We allow for this key feature by constructing a no-arbitrage GARCH affine term structure model, in which monetary policy uncertainty is modeled as the conditional volatility of the error term in a Taylor rule. We find that monetary policy uncertainty increases the medium- and longer-term spreads in a model that incorporates macroeconomic dynamics. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2010cf724&r=cba |
| By: | Gara Afonso; Anna Kovner; Antoinette Schoar |
| Abstract: | This paper examines the impact of the financial crisis of 2008, specifically the bankruptcy of Lehman Brothers, on the federal funds market. Rather than a complete collapse of lending in the presence of a market-wide shock, we see that banks became more restrictive in their choice of counterparties. Following the Lehman bankruptcy, we find that amounts and spreads became more sensitive to a borrowing bank's characteristics. While the market did not contract dramatically, lending rates increased. Further, the market did not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. We examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. As expected, borrowers who access the discount window have a lower return on assets. On the lender side, we do not find that the characteristics of the lending bank significantly affect the amount of interbank loans it makes. In particular, we do not find that worse performing banks began hoarding liquidity and indiscriminately reducing their lending. |
| Keywords: | Federal funds ; Financial crises ; Bank liquidity ; Interbank market ; Discount window |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:437&r=cba |
| By: | Andreas Fuster; Paul S. Willen |
| Abstract: | Shiller (2003) and others have argued for the creation of financial instruments that allow households to insure risks associated with their lifetime labor income. In this paper, we argue that while the purpose of such assets is to smooth consumption across states of nature, one must also consider the assets' effects on households' ability to smooth consumption over time. We show that consumers in a realistically calibrated life-cycle model would generally prefer income-linked loans (with a rate positively correlated with income shocks) to an income-hedging instrument (a limited liability asset whose returns correlate negatively with income shocks) even though the assets offer identical opportunities to smooth consumption across states. While for some parameterizations of our model the welfare gains from the presence of income-linked assets can be substantial (above 1 percent of certainty-equivalent consumption), the assets we consider can only mitigate a relatively small part of the welfare costs of labor income risk over the life cycle. |
| Keywords: | Risk management |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:10-1&r=cba |
| By: | Joshua Aizenman; Menzie D. Chinn; Hiro Ito |
| Abstract: | Using the “trilemma indexes” developed by Aizenman et al. (2008) that measure the extent of achievement in each of the three policy goals in the trilemma—monetary independence, exchange rate stability, and financial openness—we examine how policy configurations affect macroeconomic performances, with focus on the Asian economies. We find that the three policy choices matter for output volatility and the medium-term level of inflation. Greater monetary independence is associated with lower output volatility while greater exchange rate stability implies greater output volatility, which can be mitigated if a country holds international reserves (IR) at a level higher than a threshold (about 20% of GDP). Greater monetary autonomy is associated with a higher level of inflation while greater exchange rate stability and greater financial openness could lower the inflation rate. We find that trilemma policy configurations and external finances affect output volatility through the investment or trade channel depending on the openness of the economies. While a higher degree of exchange rate stability could stabilize the real exchange rate movement, it could also make investment volatile, though the volatility-enhancing effect of exchange rate stability on investment can be offset by holding higher levels of IR. Our results indicate that policy makers in a more open economy would prefer pursuing greater exchange rate stability while holding a massive amount of IR. Asian emerging market economies are found to be equipped with macroeconomic policy configurations that help the economies to dampen the volatility of the real exchange rate. These economies’ sizeable amount of IR holding appears to enhance the stabilizing effect of the trilemma policy choices, and this may help explain the recent phenomenal buildup of IR in the region. |
| JEL: | F15 F21 F31 F36 F41 O24 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15876&r=cba |
| By: | Christopher J. Neely; David E. Rapach; Jun Tu; Guofu Zhou |
| Abstract: | This paper analyzes the ability of both economic variables and moving-average rules to forecast the monthly U.S. equity premium using out-of-sample tests for 1960?2008. Both approaches provide statistically and economically significant out-of-sample forecasting gains, which are concentrated in U.S. business-cycle recessions. Nevertheless, economic variables and moving-average rules capture different sources of equity premium fluctuations: moving average rules detect the decline in the average equity premium early in recessions, while economic variables more readily pick up the rise in the average equity premium later in recessions. When we simulate data with a habit-formation model characterized by time-varying return volatility and risk aversion relating to business-cycle fluctuations, we find that this model cannot fully account for the out-of-sample forecasting gains in the actual data evidenced by economic variables and moving-average rules. |
| Keywords: | Forecasting ; Stocks |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2010-008&r=cba |
| By: | Mora, Nada (Federal Reserve Bank of Kansas City); Logan, Andrew (Oxford Economics) |
| Abstract: | This paper assesses how shocks to bank capital may influence a bank’s portfolio behaviour using novel evidence from a UK bank panel data set from a period that pre-dates the recent financial crisis. Focusing on the behaviour of bank loans, we extract the dynamic response of a bank to innovations in its capital and in its regulatory capital buffer. We find that innovations in a bank’s capital in this (pre-crisis) sample period were coupled with a loan response that lasted up to three years. Banks also responded to scarce regulatory capital by raising their deposit rate to attract funds. The international presence of UK banks allows us to identify a specific driver of capital shocks in our data, independent of bank lending to UK residents. Specifically, we use write-offs on loans to non-residents to instrument bank capital’s impact on UK resident lending. A fall in capital brought about a significant drop in lending in particular, to private non-financial corporations. In contrast, household lending increased when capital fell, which may indicate that – in this pre-crisis period – banks substituted into less risky assets when capital was short. |
| Keywords: | Bank capital; bank lending |
| JEL: | E44 F34 G21 |
| Date: | 2010–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0387&r=cba |
| By: | Carlos Carvalho; Fernanda Nechio |
| Abstract: | We study the purchasing power parity (PPP) puzzle in a multi-sector, two-country, sticky- price model. Across sectors, firms differ in the extent of price stickiness, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, this leads sectoral real exchange rates to have heterogeneous dynamics. We show analytically that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent than in a counterfactual one-sector world economy that features the same average frequency of price changes, and is otherwise identical to the multi-sector world economy. When simulated with a sectoral distribution of price stickiness that matches the microeconomic evidence for the U.S. economy, the model produces a half-life of deviations from PPP of 39 months. In contrast, the half-life of such deviations in the counterfactual one-sector economy is only slightly above one year. As a by-product, our model provides a decomposition of this difference in persistence that allows a structural interpretation of the different approaches found in the empirical literature on aggregation and the real exchange rate. In particular, we reconcile the apparently conflicting findings that gave rise to the "PPP Strikes Back debate" (Imbs et al. 2005a,b and Chen and Engel 2005). |
| Keywords: | Purchasing power parity ; Prices ; Foreign exchange rates |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2010-06&r=cba |
| By: | Sebastian Sienknecht (Department of Economics, Friedrich-Schiller-University Jena) |
| Abstract: | This paper shows how endogeneous inflation inertia is generated by a simple modificaton of the quadratic adjustment cost structure faced by economic agents. We derive the pertinent inflation relationships based on purely nominal rigidities and show that they always involve additional expectation terms which are absent in a Calvo-type environment. However, the structural differences do not prevent dynamic adjustment paths and theoretical moments to be similar under both rigidity assumptions. An extensive application of nominal adjustment frictions leads to a full-scale macroeconomic framework able to replicate empirical responses to an interest rate shock. |
| Keywords: | Inflation Dynamics, New Keynesian Phillips Curve, Business Fluctuations |
| JEL: | E31 E32 E52 |
| Date: | 2010–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-023&r=cba |
| By: | David F. Hendry (Department of Economics, Oxford University, Manor Rd. Building, Oxford, OX1 3UQ, United Kingdom.); Kirstin Hubrich (Research Department, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | To forecast an aggregate, we propose adding disaggregate variables, instead of combining forecasts of those disaggregates or forecasting by a univariate aggregate model. New analytical results show the effects of changing coefficients, mis-specification, estimation uncertainty and mis-measurement error. Forecastorigin shifts in parameters affect absolute, but not relative, forecast accuracies; mis-specification and estimation uncertainty induce forecast-error differences, which variable-selection procedures or dimension reductions can mitigate. In Monte Carlo simulations, different stochastic structures and interdependencies between disaggregates imply that including disaggregate information in the aggregate model improves forecast accuracy. Our theoretical predictions and simulations are corroborated when forecasting aggregate US inflation pre- and post 1984 using disaggregate sectoral data. JEL Classification: C51, C53, E31. |
| Keywords: | Aggregate forecasts, disaggregate information, forecast combination, inflation. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101155&r=cba |
| By: | Mumtaz, Haroon (Bank of England) |
| Abstract: | Changes in monetary policy and shifts in dynamics of the macroeconomy are typically described using empirical models that only include a limited amount of information. Examples of such models include time-varying vector autoregressions that are estimated using output growth, inflation and a short-term interest rate. This paper extends these models by incorporating a larger amount of information in these tri-variate VARs. In particular, we use a factor augmented vector autoregression extended to incorporate time-varying coefficients and stochastic volatility in the innovation variances. The reduced-form results not only confirm the finding that the great stability period in the United Kingdom is characterised by low persistence and volatility of inflation and output but also suggest that these findings extend to money growth and asset prices. The impulse response functions display little evidence of a price puzzle indicating that the extra information incorporated in our model leads to more robust structural estimates. |
| Keywords: | FAVAR; great stability; time-varying parameters; stochastic volatility |
| JEL: | E30 E32 |
| Date: | 2010–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0386&r=cba |
| By: | Yanping Chong; Òscar Jordà; Alan M. Taylor |
| Abstract: | Frictionless, perfectly competitive traded-goods markets justify thinking of purchasing power parity (PPP) as the main driver of exchange rates in the long-run. But differences in the traded/non-traded sectors of economies tend to be persistent and affect movements in local price levels in ways that upset the PPP balance (the underpinning of the Harrod-Balassa-Samuelson hypothesis, HBS). This paper uses panel-data techniques on a broad collection of countries to investigate the long-run properties of the PPP/HBS equilibrium using novel local projection methods for cointegrated systems. These semi-parametric methods isolate the long-run behavior of the data from contaminating factors such as frictions not explicitly modelled and thought to have effects only in the short-run. Absent the short-run effects, we find that the estimated speed of reversion to long-run equilibrium is much higher. In addition, the HBS effects means that the real exchange rate is converging not to a steady mean, but to a slowly to a moving target. The common failure to properly model this effect also biases the estimated speed of reversion downwards. Thus, the so-called "PPP puzzle" is not as bad as we thought. |
| JEL: | F31 F41 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15868&r=cba |
| By: | Federico S. Mandelman; Pau Rabanal; Juan F. Rubio-Ramírez; Diego Vilán |
| Abstract: | In this paper, we first introduce investment-specific technology (IST) shocks into an otherwise standard international real business cycle model and show that a thoughtful calibration of them along the lines of Raffo (2009) successfully addresses several of the existing puzzles in the literature. In particular, we obtain a negative correlation of relative consumption and the terms of trade (Backus-Smith puzzle), as well as a more volatile real exchange rate, and cross-country output correlations that are higher than consumption correlations (price and quantity puzzles). Then we use data from the Organisation for Economic Co-operation and Development for the relative price of investment to build and estimate these IST processes across the United States and a "rest of the world" aggregate, showing that they are cointegrated and well represented by a vector error–correction model. Finally, we demonstrate that, when we fit such estimated IST processes into the model, the shocks are actually powerless to explain any of the existing puzzles. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2010-03&r=cba |
| By: | Rowena Pecchenino (Economics,Finance and Accounting,National University of Ireland, Maynooth); |
| Abstract: | We make choices to achieve an objective. The objective is defined by an individual’s preferences. Subject to constraints, the objective is approached or achieved. Is this a good characterization of life? To answer this question we weaken one of the most basic assumptions of economics: individuals know their preferences. Instead we assume that an individual’s preferences are shaped and reshaped by his environment, experiences, expectations, and by exogenous events. In this model of individual self-discovery, preferences emerge, evolve, and change. These redefinitions change the future course of the individual’s life and reinterpret his past. They characterize a life lived. |
| Keywords: | Identity, Preferences, Choice, Life |
| JEL: | D01 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n205-10.pdf&r=cba |
| By: | Jean Pietro Bonaldi |
| Abstract: | This article analyzes identification problems that may arise while linearizing and solving DSGE models. A criterion is proposed to determine whether or not a set of parameters is partially identifiable, in the sense of Canova and Sala (2009), based on the computation of a basis for the null space of the Jacobian matrix of the function mapping the parameters with the coefficients in the solution of the model. |
| Date: | 2010–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:006859&r=cba |
| By: | Gary S. Anderson |
| Abstract: | This paper describes a set of algorithms for quickly and reliably solving linear rational expectations models. The utility, reliability and speed of these algorithms are a consequence of 1) the algorithm for computing the minimal dimension state space transition matrix for models with arbitrary numbers of lags or leads, 2) the availability of a simple modeling language for characterizing a linear model and 3) the use of the QR Decomposition and Arnoldi type eigenspace calculations. The paper also presents new formulae for computing and manipulating solutions for arbitrary exogenous processes. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-13&r=cba |
| By: | Forte, Antonio |
| Abstract: | In this paper I try to find some empirical evidence of the European Central Bank’s behaviour from its outset, January 1999, to the mid 2007, using a Taylor-type rule. I test a new and simple method for estimating the output gap in order to avoid problems linked with the estimate of the potential output. Moreover, I analyse the significance of some explanatory variables in order to understand what the basis of the E.C.B. monetary policy decisions are. Finally, I find an important evidence of the role of the Euro-Dollar nominal exchange rate in the conduct of the Euro Area monetary policy. |
| Keywords: | Taylor Rule; European Central Bank; Euro-Dollar exchange rate |
| JEL: | E43 E58 E52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21785&r=cba |
| By: | Massimiliano Marcellino (European University Institute, Badia Fiesolana - Via dei Roccettini 9, I-50014 San Domenico di Fiesole (FI), Italy. Bocconi University and CEPR.); Alberto Musso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides evidence on the reliability of euro area real-time output gap estimates. A genuine real-time data set for the euro area is used, including vintages of several sets of euro area output gap estimates available from 1999 to 2006. It turns out that real-time estimates of the output gap are characterised by a high degree of uncertainty, much higher than that resulting from model and estimation uncertainty only. In particular, the evidence indicates that both the magnitude and the sign of the real-time estimates of the euro area output gap are very uncertain. The uncertainty is mostly due to parameter instability, while data revisions seem to play a minor role. To benchmark our results, we repeat the analysis for the US over the same sample. It turns out that US real time estimates are much more correlated with final estimates than for the euro area, data revisions play a larger role, but overall the unreliability in real time of the US output gap measures detected in earlier studies is confirmed in the more recent period. Moreover, despite some difference across output gap estimates and forecast horizons, the results point clearly to a lack of any usefulness of real-time output gap estimates for inflation forecasting both in the short term (one-quarter and one-year ahead) and the medium term (two-year and three-year ahead). By contrast, some evidence is provided indicating that several output gap estimates are useful to forecast real GDP growth, particularly in the short term, and some appear also useful in the medium run. No single output gap measure appears superior to all others in all respects. JEL Classification: E31, E37, E52, E58. |
| Keywords: | Output gap, real-time data, euro area, inflation forecasts, real GDP forecasts, data revisions. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101157&r=cba |
| By: | Wyplosz, Charles (Asian Development Bank Institute) |
| Abstract: | This paper contrasts the United States (US) and European situations during the crisis and examines how much of the crisis has been imported by Europe from the US. The paper argues that Europe never had a chance to avoid contagion from the US. It also documents the relatively limited reaction of both monetary and fiscal authorities. Muted fiscal policy actions may well be a consequence of the Stability and Growth Pact despite its having been de facto suspended. While the European Central Bank (ECB) intervened promptly and massively to attempt to maintain liquidity in the money market, it has been slow in dealing with the upcoming recession. The concluding remarks consider the differences that the monetary union has made and their relevance. |
| Keywords: | us european economic crisis; global financial crisis; europe imported financial crisis |
| JEL: | E42 E58 E61 F32 F33 |
| Date: | 2010–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0207&r=cba |
| By: | Gabe de Bondt (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Angela Maddaloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); José-Luis Peydró (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Silvia Scopel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This study examines empirically the information content of the euro area Bank Lending Survey for aggregate credit and output growth. The responses of the lending survey, especially those related to loans to enterprises, are a significant leading indicator for euro area bank credit and real GDP growth. Notwithstanding the short history of the survey, the findings are robust across various specifications, including “horse races” with other well-known leading financial indicators. Our results are supportive of the existence of a bank lending, balance sheet, and risk-taking channel of monetary policy. They also suggest that price as well as non-price conditions and terms of credit standards do matter for credit and business cycles. Finally, we discuss the implications for the 2007/2009 financial and economic crisis. JEL Classification: C23, E32, E51, E52, G21, G28. |
| Keywords: | bank lending survey, credit cycle, business cycle, monetary policy transmission, euro area. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101160&r=cba |
| By: | Ferrara, L.; Koopman, S J. |
| Abstract: | The 2007 sub-prime crisis in the United States, prolonged by a severe economic recession spread over many countries around the world, has led many economic researchers to focus on the recent fluctuations in housing prices and their relationships with macroeconomics and monetary policies. The existence of common housing cycles among the countries of the euro zone could lead the European Central Bank to integrate more specifically the evolution of such asset prices in its assessment. In this paper, we implement a multivariate unobserved component model on housing market variables in order to assess the common euro area housing cycle and to evaluate its relationship with the economic cycle. Among the general class of multivariate unobserved component models, we implement the band-pass filter based on the trend plus cycle decomposition model and we allow the existence of two cycles of different periods. The dataset consists of gross domestic product and real house prices series for four main euro area countries (Germany, France, Italy and Spain). Empirical results show a strong relationship for business cycles in France, Italy and Spain. Moreover, French and Spanish house prices cycles appear to be strongly related, while the German one possesses its own dynamics. Finally, we find that GDP and house prices cycles are related in the medium-term for fluctuations between 4 and 8 years, while the housing market contributes to the long-term economic growth only in Spain and Germany. |
| Keywords: | House prices, Business cycles, Euro area, Unobserved components model. |
| JEL: | C13 C32 E32 R21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:275&r=cba |
| By: | Se-Eun Jeong (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jacques Mazier (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jamel Saadaoui (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII) |
| Abstract: | Since the mid-1990s, we observe an increase of world current account imbalances. These imbalances have only been partially reduced since the burst of the crisis in 2007. They reflect, to some extent, exchange rate misalignments, an issue which has been frequently studied in the literature. However, these imbalances, which have reinforced in the 2000s, are also important inside the Euro area. This analysis cannot be reduced to simple estimates of euro misalignment at the world level because of the specific constraints that exist for each member of the Euro area. This article aims to examine to what extent the intra-European imbalances reflect exchange rate misalignments for each “national euro”. |
| Keywords: | Equilibrium Exchange Rate; Current Account Balance; Macroeconomic Balance |
| Date: | 2010–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00435836_v4&r=cba |
| By: | Alberto Musso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Stefano Neri (Banca d’Italia, Economic Outlook and Monetary Policy Department, Via Nazionale, 91, 00184 Roma, Italy.); Livio Stracca (European Central Bank, DG International and European Relations, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | The paper provides a systematic empirical analysis of the role of the housing market in the macroeconomy in the US and in the euro area. First, it establishes some stylised facts concerning key variables in the housing market, such as the real house price, residential investment and mortgage debt on the two sides of the Atlantic. Then, it presents evidence from Structural Vector Autoregressions (SVAR) by focusing on the effects of three structural shocks, (i) monetary policy, (ii) credit supply and (iii) housing demand shocks on the housing market and the broader economy. We find that similarities overshadow differences as far as the role of the housing market is concerned. We find evidence pointing in the direction of a stronger role for housing in the transmission of monetary policy shocks in the US, while the evidence is less clearcut for housing demand shocks. We also find that credit supply shocks matter more in the euro area. JEL Classification: E22, E44, E52. |
| Keywords: | Residential investment, House prices, Credit, Monetary Policy. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101161&r=cba |
| By: | John Muellbauer |
| Abstract: | It is widely acknowledged that the recent generation of DSGE models failed to incorporate many of the liquidity and financial accelerator mechanisms revealed in the global financial crisis that began in 2007. This paper complements the papers presented at the 2009 BIS annual conference focused on the role of banks and other financial institutions by analysing the role of household decisions and their interplay with credit conditions and asset prices in the light of empirical evidence. In DSGE models without financial frictions, asset prices are merely a proxy for income growth expectations and play no separate role. On UK aggregate consumption evidence, section 2 of the paper shows this is strongly contradicted by the data, for all possible discount rates and both for a perfect foresight and an empirical rational expectations approach to measuring income expectations. However, an Ando-Modigliani consumption function generalised to include a role for liquidity, uncertainty, time varying credit conditions, wealth and housing collateral effects, as well as income expectations, explains the data well. Section 3 reports new evidence on the striking rejection on aggregate data of the consumption Euler equation central to all DSGE models. Section 4 shows that UK micro evidence is consistent with the generalised Ando-Modigliani model. Section 5 discusses the limitations of recent DSGE models with financial frictions and housing. Section 6 discusses some business cycle implications of amplification mechanisms and non-linearities operating via households and residential construction. It reconsiders econometric methodology appropriate for designing better evidence-based central bank policy models. |
| Keywords: | household decisions, housing markets, wealth, business cycle models, consumption |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:306&r=cba |
| By: | de Bandt, O.; Barhoumi, K.; Bruneau, C. |
| Abstract: | In order to assess transmission mechanisms between global and domestic house prices, and possibly contagion effects, we use a large database of macroeconomic variables for OECD countries. We extract common factors to summarize the comovements of the variables and include them in stationary FAVAR models. We mainly focus on the "pandemic" view of contagion where local shocks, originating from a country or a local housing market, spread out to other domestic housing markets. An interesting finding is that, even allowing for other channels of international transmission (through global interest rates, or activity), the US real house price, which appears to be exogenous in the US dynamics, unidirectionally causes the international house price factor, which in turn causes the domestic real house price growth for several countries. The channels of contagion from the US appears therefore to be either direct, through house prices (in particular in the UK or Spain), or indirect through other variables. |
| Keywords: | housing, factor models, Vector Autoregressive model. |
| JEL: | G33 E32 D21 C41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:274&r=cba |
| By: | Darrell Duffie |
| Abstract: | I explain the key failure mechanics of large dealer banks, and some policy implications. This is not a review of the financial crisis of 2007–2009. Systemic risk is considered only in passing. Both the financial crisis and the systemic importance of large dealer banks are nevertheless obvious and important motivations. |
| Keywords: | liquidity, dealer banks, OTC markets, financial crisis |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:301&r=cba |
| By: | Maurizio Michael Habib (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper studies net foreign assets and the differential returns between gross foreign assets and liabilities for a sample of 49 countries between 1981 and 2007. It shows that investment income is more important than capital gains in imparting a drift to net foreign assets over the long-run, whereas the latter dominate short-term dynamics. Excess returns on net foreign assets of the United States are indeed exorbitant from a global perspective, only occasionally matched by other countries and mainly accounted for by positive valuation effects. The role of the United States as levered investor did not contribute to its exorbitant privilege. The econometric panel analysis also fails to find a robust positive relationship between leverage and excess returns. Notably, instead, real exchange rate depreciations increase excess returns through capital gains, proportionally to the relative foreign currency exposure. Excess yields on investment income are positively associated with the country risk rating. JEL Classification: F30, F31, F36. |
| Keywords: | net foreign assets, excess returns, exorbitant privilege, leverage. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101158&r=cba |
| By: | Cette, G.; Kocoglu, Y.; Mairesse, J. |
| Abstract: | This study compares labor and total factor productivity (TFP) in France, Japan, the United Kingdom and the United States in the very long (since 1890) and medium (since 1980) runs. During the past century, the United States has overtaken the United Kingdom and become the leading world economy. During the past 25 years, the four countries have also experienced contrasting advances in productivity, in particular as a result of unequal investment in information and communication technology (ICT). The past 120 years have been characterized by: (i) rapid economic growth and large productivity gains in all four countries; (ii) a long decline in productivity in the United Kingdom relative to the United States, and to a lesser extent also relative to France and Japan, a relative decline that was interrupted by the second world war (WW2); (iii) the remarkable catching-up to the United States by France and Japan after WW2, interrupted in the case of Japan during the 1990s. Capital deepening (at least to the extent this can be measured) accounts for a large share of the variations in performance; increasingly during the past 25 years, this has meant ICT capital deepening. However, the capital contribution to growth varies considerably over time and across the four countries, and it is always less important, except in Japan, than the contribution of the various other factors underlying TFP growth, such as, among others, labor skills, technical and organizational changes and knowledge spillovers. Most recently (in 2006), before the current financial world crisis, hourly labor productivity levels were slightly higher in France than in the United States, and noticeably lower in the United Kingdom (by roughly 10%) and even lower in Japan (30%), while TFP levels are very close in France, the United Kingdom and the United States, but much lower (40%) in Japan. |
| Keywords: | Productivity, growth accounting, macro-economic history. |
| JEL: | O47 O57 E22 J24 N10 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:271&r=cba |
| By: | Sebastian Giesen; Oliver Holtemöller; Juliane Scharff; Rolf Scheufele |
| Abstract: | In this paper we develop a small open economy model explaining the joint determination of output, inflation, interest rates, unemployment and the exchange rate in a multi-country framework. Our model – the Halle Economic Projection Model (HEPM) – is closely related to studies recently published by the International Monetary Fund (global projection model). Our main contribution is that we model the Euro area countries separately. In this version we consider Germany and France, which represent together about 50 percent of Euro area GDP. The model allows for country specific heterogeneity in the sense that we capture different adjustment patterns to economic shocks. The model is estimated using Bayesian techniques. Out-of-sample and pseudo out-of-sample forecasts are presented. |
| Keywords: | Multi-country model, Forecasting, Bayesian estimation |
| JEL: | C32 C53 E37 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:6-10&r=cba |
| By: | James Mitchell; Martin Weale; Solomou, S. |
| Abstract: | We derive monthly and quarterly series of UK GDP for the inter-war period from a set of indicators that were constructed at the time. We proceed to illustrate how the new data can contribute to our understanding of the economic history of the UK in the 1930s and have also used the series to draw comparisons between recession profiles in the 1930s and the post-war period. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:348&r=cba |
| By: | Bhattacharya, Joydeep; Haslag, Joseph; Martin, Antoine |
| Abstract: | In this paper, we argue that the observed difference in the cost of intraday and overnight liquidity is part of an optimal payments system design. In our environment, overnight liquidity affects output while intraday liquidity affects only the distribution of resources between money holders and non-money holders. The low cost of intraday liquidity is explained by the Friedman rule. The optimal cost differential achieves the twin objective of reducing the incentive to overuse money at night and encouraging payment-risk sharing during the day. |
| Keywords: | Friedman rule; monetary policy; Overnight liquidity; intraday liquidity; random-relocation models |
| JEL: | E31 E51 E58 |
| Date: | 2009–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:13096&r=cba |
| By: | Jeffrey A. Frankel |
| Abstract: | It is striking how often countries with oil or other natural resource wealth have failed to grow more rapidly than those without. This is the phenomenon known as the Natural Resource Curse. The principle has been borne out in some econometric tests of the determinants of economic performance across a comprehensive sample of countries. This paper considers six aspects of commodity wealth, each of interest in its own right, but each also a channel that some have suggested could lead to sub-standard economic performance. They are: long-term trends in world commodity prices, volatility, crowding out of manufacturing, civil war, poor institutions, and the Dutch Disease. Skeptics have questioned the Natural Resource Curse, pointing to examples of commodity-exporting countries that have done well and arguing that resource endowments and booms are not exogenous. The paper concludes with a consideration of institutions and policies that some commodity-producers have tried, in efforts to overcome the pitfalls of the Curse. Ideas include indexation of oil contracts, hedging of export proceeds, denomination of debt in terms of oil, Chile-style fiscal rules, a monetary target that emphasizes product prices, transparent commodity funds, and lump-sum distribution. |
| JEL: | O1 Q0 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15836&r=cba |
| By: | Fang Yao |
| Abstract: | This paper presents an approach to identify aggregate price reset hazards from the joint dynamic behavior of inflation and macroeconomic aggregates. The identification is possible due to the fact that inflation is composed of current and past reset prices and that the composition depends on the price reset hazard function. The derivation of the generalized NKPC links those compostion effects to the hazard function, so that only aggregate data is needed to extract information about the price reset hazard function. The empirical hazard function is generally increasing with the age of prices, but with spikes at the 1st and 4th quarters. The implication of this finding for sticky price modeling is that the pricing decision is characterized by both time- and state-dependent aspects. |
| Keywords: | Sticky prices, Aggregate hazard function, Bayesian estimation |
| JEL: | E12 E31 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-020&r=cba |
| By: | Thomas A. Garrett; Howard J. Wall |
| Abstract: | This paper estimates the dynamics of the personal-bankruptcy rate over the business cycle by exploiting large cross-state variation in recessions and bankruptcies. We find that bankruptcy rates are significantly higher than normal during a recession and rise as a recession persists. After a recession ends, there is a hangover whereby bankruptcy rates begin to fall but remain above normal for several more quarters. Recovery periods see a strong bounce-back effect with bankruptcy rates significantly below normal for several quarters. Despite the significant increases in bankruptcies that occur during recessions, the largest contributor to rising bankruptcies during these periods has tended to be the longstanding upward trend. |
| Keywords: | Bankruptcy ; Finance, Personal |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2010-010&r=cba |
| By: | Janett Neugebauer; Dennis Wesselbaum |
| Abstract: | This paper investigates the role of staggered wages and sticky prices in explaining stylized labor market facts. We build on a partial equilibrium search and matching model and expand the model to a general equilibrium model with sticky prices and/or staggered wages. We show that the core model creates too much volatility in response to a technology shock. The sticky price model outperforms the staggered wage model in terms of matching volatilities, while the combination of both rigidities matches the data reasonably well |
| Keywords: | Search and Matching, Staggered Wages, Sticky Prices |
| JEL: | E24 E32 J64 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1608&r=cba |
| By: | Marcelo Bianconi; Joe A. Yoshino |
| Abstract: | This paper presents empirical evidence on the effects of three nominal risk factors, local interest spreads, US interest spread, and US federal funds rate signal-to-noise ratio on the value of firms and on the cross-listing decision of firms destined to three major markets in North America, Asia, and Europe. We use firm-level data in 29 countries of cross-listing origin over a six year period, from 2000-2005. We find consistent and robust evidence that the US federal funds rate signal-to-noise ratio risk factor in the Sharpe sense provides an important benchmark for firm value across the universe of publicly traded companies; and this effect is larger for smaller firms that cross-list abroad. Countries in Asia, Europe, and South America tend to seek more funds abroad through cross-listing relative to other regions in this sample. In general, we find that the lagged local interest risk factor is positively related to current probability of cross listing. Small firms located in Asia, medium firms located in Europe, and large firms located in Asia, Europe, and South America have a higher relative probability of cross listing abroad. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0748&r=cba |
| By: | James P. Gander |
| Abstract: | Micro industrial firm panel data on short-term and long-term borrowing (term debt structure) for annual and quarterly time periods over the years 1995-2008 are used to test an insulation hypothesis and a related volatility hypothesis. The former test uses a regression model relating the ratio of accounts payable in trade to long-term debt to firm size and other variables. The focus is on a micro perspective of the firm’s response to the FED’s monetary policy. If differs from an earlier macro perspective that focused on the existence of bank lending channels. The latter hypothesis uses the panel heteroscedastic variances recovered from the first testing procedure to test for a quadratic-form risk function (either U-shaped or inverted U-shaped) using sigma squared and the coefficient of variation as risk indexes and firm size as a determinant. The findings suggest that there is some evidence that firms do insulate themselves from the effects of monetary policy and that retained earnings have a significant role in the insulation effect. The evidence also suggests that the risk index, the variances, is related to firm size by a U-shaped quadratic function. As firm size increases, not only does the term-structure ratio fall, but the volatility falls and at a falling rate of change, approaching zero for a sufficiently large firm. |
| Keywords: | Firms, Debt-Structure, Monetary Policy |
| JEL: | C33 E44 E52 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2010_05&r=cba |
| By: | Yoshiharu Oritani |
| Abstract: | The governance of central banks has two dimensions: corporate governance and public governance. Public governance is an institutional framework whereby the general public governs a central bank by and through the legislative and executive bodies in a country. This paper argues that the literature of new institutional economics sheds new light on the public governance of central banks. First, Williamson’s theory of "governance as integrity" (probity) is applied to the internal management of central banks. Moe’s theory of "public bureaucracy" is applied to the concept of central bank independence. Second, we apply agency theory to the issues associated with central bank independence and accountability. Third, public choice theory is applied to central bank independence. |
| Keywords: | central bank, public governance, transaction cost economics, public choice |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:299&r=cba |
| By: | Thomas J. Holmes; James A. Schmitz, Jr. |
| Abstract: | Does competition spur productivity? And if so, how does it do so? These have long been regarded as central questions in economics. This essay reviews the literature that makes progress toward answering both questions. |
| Keywords: | Competition ; Monopolies ; Productivity |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:439&r=cba |
| By: | Roberto Cortes Conde (Department of Economics, Universidad de San Andres) |
| Keywords: | monetary reform, banking reform, depression, 1930, Argentina |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:sad:wpaper:98&r=cba |