|
on Central Banking |
| By: | Alberto Bisin; John Geanakoplos; Piero Gottardi; Enrico Minelli; Herakles Polemarchakis |
| Abstract: | Economies with asymmetric information are encompassed by an extension of the model of general competitive equilibrium that does not require an explicit modeling of private information. Sellers have discretion over deliveries on contracts; this is in common with economies with default, incomplete contracts or price rigidities. Competitive equilibria exist and anonymous markets are viable. But, for a generic economy, there exist Pareto improving interventions via linear, anonymous taxes. |
| Keywords: | asymmetric information, competitive markets, equilibrium |
| JEL: | D50 D52 D82 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2010/29&r=cba |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric Young |
| Abstract: | This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficient borrowing) in a business cycle model for emerging market economies with production and an occasionally binding credit constraint. The main finding of the analysis is that overborrowing is not a robust feature of this class of model economies: it depends on the structure of the economy and its parametrization. Specifcally, underborrowing in a production economy is found with the baseline calibration, but overborrowing with more impatient agents and more volatile shocks. Endowment economies display overborrowing regardless of parameter values, but they do not allow for policy intervention when the constraint binds (in crisis times). Quantitatively, the welfare gains from implementing the constrained¬effcient allocation are always larger near crisis times than in normal ones. In production economies, they are one order of magnitude larger than in endowment economies both in crisis and normal times. This suggests that the scope for economy¬widemacro¬prudential policy interventions (e.g., prudential taxation of capital flows and capital controls) is weak in this class of models. |
| Keywords: | Bailouts, Financial Frictions, Macro Prudential Policies, Overborrowing |
| JEL: | E52 F37 F41 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4676&r=cba |
| By: | Peter B. Kenen (Princeton University) |
| Abstract: | The subject of this paper is one about which I have written before, but this paper goes further than those published previously. It contemplates the gradual transformation of the global reserve regime by making the IMF’s quasi-currency, the SDR, the primary reserve asset of the international monetary system, which was the objective adopted when the SDR was introduced in 1969. |
| Keywords: | foreign exchange, currency reserves |
| JEL: | E42 E58 F31 F33 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:1227&r=cba |
| By: | Michele Berardi; John Duffy |
| Abstract: | We explore real time, adaptive nonlinear learning dynamics in stochastic macroeconomic systems. Rather than linearizing nonlinear Euler equations where expectations play a role around a steady state, we instead approximate the nonlinear expected values using the method of parameterized expectations. Further we suppose that these approximated expectations are updated in real time as new data become available. We explore whether this method of real-time parameterized expectations learning provides a plausible alternative to real-time adaptive learning dynamics under linearized versions of the same nonlinear system. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:147&r=cba |
| By: | Snower, Dennis J. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ifwkie:info:hdl:10419/32981&r=cba |
| By: | Hauskrecht, Andreas; Stuart, Bryan; Hankel, Wilhelm |
| Abstract: | In contrast to Robert Mundell‘s Optimum Currency Area theory and his recommendation of forming a monetary union, the economic fundamentals of Euro area member countries have not harmonized. The opposite holds: the Euro core countries - most of all Germany, but also the Netherlands and Finland - increased productivity growth while limiting nominal wage growth. However, Mediterranean countries - particularly Greece, but also Spain, Portugal, and Italy - have dramatically lost international competitiveness. Although the overall balance of payments for the Euro area at large is almost balanced, internal disequilibria are skyrocketing and default risk premiums and tensions within the Euro area are rising, thus jeopardizing the stability of the monetary union. The findings confirm that a common currency without fiscal union is inherently unstable. The international financial and economic crisis has merely triggered events which highlight this instability. The paper discusses three possible scenarios for the future of the Euro: a laissez faire approach, a bailout, and finally an exit strategy for the Mediterranean countries, or an organized exit by a group of core countries led by Germany, forming their own smaller monetary union. |
| Keywords: | Optimum currency areas; monetary union; risk spreads; central banking; exchange rates; fiscal policy |
| JEL: | E58 E42 E00 E44 F33 |
| Date: | 2010–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23750&r=cba |
| By: | Russell Cooper (European University Institute and University of Texas); Hubert Kempf (Centre d'Economie de la Sorbonne - Paris School of Economics et Banque de France); Dan Peled (University of Haifa - Department of Economics) |
| Abstract: | This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to the presence of monetary frictions, modeled here as reserve requirements. When capital markets art integrated, the fiscal policy of one country influences equilibrium wages and interest rates. Under certain rules, monetary policy may respond to the price variations induced by regional fiscal policies. Depending on the type of rule it adopts, interventions by the monetary authority affect the magnitude and nature of the spillover from regional fiscal policy. |
| Keywords: | Monetary Union, inflation tax, seigniorage, monetary rules, public debt. |
| JEL: | H30 H87 C72 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10045&r=cba |
| By: | Russell Cooper (University of Texas - Department of Economics); Hubert Kempf (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Banque de France - Direction de la Recherche); Dan Peled (University of Haifa - Department of Economics) |
| Abstract: | This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to the presence of monetary frictions, modeled here as reserve requirements. When capital markets art integrated, the fiscal policy of one country influences equilibrium wages and interest rates. Under certain rules, monetary policy may respond to the price variations induced by regional fiscal policies. Depending on the type of rule it adopts, interventions by the monetary authority affect the magnitude and nature of the spillover from regional fiscal policy. |
| Keywords: | Monetary union, inflation tax, seigniorage, monetary rules, public debt. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00497430_v1&r=cba |
| By: | Xiaoshan Chen; Ronald MacDonald |
| Abstract: | We propose an alterative approach to obtaining a permanent equilibrium exchange rate (PEER), based on an unobserved components (UC) model. This approach offers a number of advantages over the conventional cointegration-based PEER. Firstly, we do not rely on the prerequisite that cointegration has to be found between the real exchange rate and macroeconomic fundamentals to obtain non-spurious long-run relationships and the PEER. Secondly, the impact that the permanent and transitory components of the macroeconomic fundamentals have on the real exchange rate can be modelled separately in the UC model. This is important for variables, where the long and short-run effects may drive the real exchange rate in opposite directions, such as the relative government expenditure ratio. |
| Keywords: | Permanent Equilibrium Exchange Rate; Unobserved Components Model; Exchange rate forecasting. |
| JEL: | F31 F47 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2010_16&r=cba |
| By: | Ester Faia (Goethe University Frankfurt - Department of Money and Macroeconomics, CEPREMAP - Centre pour la recherche économique et ses applications); Eleni Iliopulos (CEPREMAP - Centre pour la recherche économique et ses applications, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | How should monetary policy be optimally designed in an environment with high degrees of financial globalization ? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement. Borrowing is secured by collateral in the form of durable goods whose accumulation is subject to adjustment costs. We demonstrate that, although this economy can generate persistent current account deficits, it can also deliver a stationary equilibrium. The comparison between different monetary policy regimes (floating versus pegged) shows that the impossible trinity is reversed : a higher degree of financial globalization, by inducing more persistent and volatile current account deficits, calls for exchange rate stabilization. Finally, we study the design of optimal (Ramsey) monetary policy. In this environment the policy maker faces the additional goal of stabilizing exchange rate movements, which exacerbate fluctuations in the wedges induced by the collateral constraint. In this context optimality requires deviations from price stability and calls for exchange rate stabilization. |
| Keywords: | Globales imbalances, collateral constraints, monetary regimes. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00497486_v1&r=cba |
| By: | Ester Faia (Goethe University Frankfurt et CEPREMAP); Eleni Iliopulos (Centre d'Economie de la Sorbonne - Paris School of Economice et CEPREMAP) |
| Abstract: | How should monetary policy be optimally designed in an environment with high degrees of financial globalization ? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement. Borrowing is secured by collateral in the form of durable goods whose accumulation is subject to adjustment costs. We demonstrate that, although this economy can generate persistent current account deficits, it can also deliver a stationary equilibrium. The comparison between different monetary policy regimes (floating versus pegged) shows that the impossible trinity is reversed : a higher degree of financial globalization, by inducing more persistent and volatile current account deficits, calls for exchange rate stabilization. Finally, we study the design of optimal (Ramsey) monetary policy. In this environment the policy maker faces the additional goal of stabilizing exchange rate movements, which exacerbate fluctuations in the wedges induced by the collateral constraint. In this context optimality requires deviations from price stability and calls for exchange rate stabilization. |
| Keywords: | Global imabalances, collateral constraints, monetary regimes. |
| JEL: | E52 F1 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10053&r=cba |
| By: | Ignazio Angeloni |
| Abstract: | In this paper Bruegel Visiting Scholar Ignazio Angeloni (European Central Bank), Ester Faia (Goethe University Frankfurt, Kiel IfW and CEPREMAP) and Marco Lo Duca (European Central Bank) examine the links between monetary policy, financial risk and the business cycle, combining data evidence and a new DSGE model with banks. The model includes banks (modeled as in Diamond and Rajan, JF 2000 and JPE 2001) and a financial accelerator (Bernanke et al., 1999 Handbook). A monetary expansion increases the propensity of banks to assume risks. In turn, financial risks affect economic activity and prices. This "risk-taking" channel of monetary transmission, absent in pure financial accelerator models, operates via the leverage decisions of banks. The model results match certain features of the data, as emerged in recent panel data studies and in our own time series estimates for the US and the euro area. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:397&r=cba |
| By: | Adolfo Barajas; Ralph Chami; Dalia Hakura; Thomas F. Cosimano |
| Abstract: | The paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banks’ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the Federal Reserve’s interest rate cuts. Banks optimally choose capital based on the expected future demand for loans and the marginal cost of capital. |
| Date: | 2010–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/131&r=cba |
| By: | Mario Cerrato; Hyunsok Kim; Ronald MacDonald |
| Abstract: | This paper investigates the (break) stationarity null hypothesis using data for 25 interest rates with different maturities and risk characteristics in Canada and the US. In contrast to a large part of the literature, this paper reports strong empirical evidence in favour of the null hypothesis of stationarity for the interest rate series. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2010_17&r=cba |
| By: | Crowley, Patrick; Aaron, Schultz |
| Abstract: | Convergence and synchronisation of business and growth cycles are important issues in the efficient formulation of euro area economic policies, and in particular European Central Bank (ECB) monetary policy. Although several studies in the economics literature address the issue of synchronicity of growth within the euro area, this is the first study to address this issue using cross-recurrence analysis. The main findings are that member state growth rates had largely converged before the introduction of the euro, but there is a wide degree of different synchronisation behaviours which appear non-linear in nature. Many of the euro area member states display what is termed here as "intermittency" in synchronization, although this is not consistent across countries or members of the euro area. These differences in synchronization behaviors could cause problems in future implementation of euro area monetary policy. |
| Keywords: | Euro area; business cycles; growth cycles; recurrence plots; recurrence quantification analysis; non-stationarity; complex systems; surrogate analysis. |
| JEL: | E32 C14 F43 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23728&r=cba |
| By: | Alessandro Barattieri (Boston College); Susanto Basu (Boston College; NBER); Peter Gottschalk (Boston College) |
| Abstract: | Nominal wage stickiness is an important component of recent medium-scale structural macroeconomic models, but to date there has been little microeconomic evidence supporting the as- sumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using data from the Survey of Income and Program Participation (SIPP) for the period 1996-1999. The SIPP provides high-frequency information on wages, employment and demographic characteristics for a large and representative sample of the US population. The main results of the analysis are as follows. 1) After correcting for measurement error, wages appear to be very sticky. In the average quarter, the probability that an individual will experience a nominal wage change is between 5 and 18 percent, depending on the samples and assumptions used. 2) The frequency of wage adjustment does not display significant seasonal patterns. 3) There is little heterogeneity in the frequency of wage adjustment across industries and occupations 4) The hazard of a nominal wage change first increases and then decreases, with a peak at 12 months. 5) The probability of a wage change is positively correlated with the unemployment rate and with the consumer price inflation rate. |
| Keywords: | Wage stickiness, micro-level evidence, measurement error |
| JEL: | E24 E32 J30 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:740&r=cba |
| By: | Arnoldo López-Marmolejo; Fabrizio López-Gallo Dey |
| Abstract: | The goal of this paper is to explore the bene?ts of having a private liquidity provider and the conditions under which this lender provides liquidity, when a public liquidity provider is also present. The model proposed incorporates an endogenous interbank lending market so that the decision of a bank to seek liquidity in the interbank market or to turn to the private or the public lender is also endogenous. This framework permits the derivation of conclusions on the size of the private lender, interbank lending conditions and optimal policy for liquidity provision. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1015&r=cba |
| By: | Joyce, Michael (Bank of England); Lasaosa, Ana (Bank of England); Stevens , Ibrahim (Bank of England); Tong, Matthew (Bank of England) |
| Abstract: | As part of its response to the global banking crisis and a sharp downturn in domestic economic prospects, the Bank of England’s Monetary Policy Committee (MPC) began a programme of large-scale asset purchases (commonly referred to as quantitative easing or QE) in March 2009, with the aim of injecting additional money into the economy and so increasing nominal spending growth to a rate consistent with meeting the CPI inflation target in the medium term. By February 2010, the MPC had made £200 billion of purchases, most of which had been of UK government securities (gilts). Based on analysis of the reaction of financial market prices and econometric estimates, this paper attempts to assess the impact of the Bank’s QE policy on asset prices. Our estimates of the reaction of gilt prices to the programme suggest that QE may have depressed gilt yields by about 100 basis points. On balance the evidence seems to suggest that the largest part of the impact of QE came through a portfolio rebalancing channel. The wider impact on other asset prices is more difficult to disentangle from other influences: the initial impact was muted but the overall effects were potentially much larger, though subject to considerable uncertainty. |
| Keywords: | QE; monetary policy; asset purchases; asset prices |
| JEL: | E44 E52 E58 |
| Date: | 2010–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0393&r=cba |
| By: | Kraenzlin, Sébastien (Swiss National Bank); Nellen, Thomas (Swiss National Bank) |
| Abstract: | Based on real-time trade data from the Swiss franc overnight interbank repo market and SIX Interbank Clearing (SIC) – the Swiss real-time gross settlement (RTGS) system – we are able to gain valuable insights on the daytime value of money and its determinants: First, an implicit hourly interbank interest rate can be derived from the intraday term structure of the overnight rate. We thereby provide evidence that an implicit intraday money market exists. Second, we show that after the introduction of the foreign exchange settlement system CLS the value of intraday liquidity has increased during the hours of the CLS settlement cycle. Third, the turnover as well as the liquidity in SIC influence the intraday rate correspondingly. These facts provide evidence for the cost of immediacy. Features like RTGS, delivery-versus-payment and payment-versus-payment substitute credit risk with liquidity risk which in turn increases the value of intraday liquidity. The analysis is central bank policy relevant insofar as different designs of intraday liquidity facilities and different collateral policies result in different intraday term structures for the overnight money market. |
| Keywords: | interbank money market; intraday credit; term structure |
| JEL: | E58 G21 G28 |
| Date: | 2010–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:snbwpa:2010_006&r=cba |
| By: | Jean-Paul Lam (Department of Economics, University of Waterloo) |
| Abstract: | In the New Keynesian model, even if the central bank does not have an over-ambitious output target, policy under discretion leads to an inefficiency known as the stabilisation bias. In this paper, using a New Keynesian model, we explore and quantify how various uncertainties such as an information lag, a cost channel and multi-period data revisions affect the size of the stabilisation bias. When an information lag is introduced in an otherwise standard New Keynesian model, we find that the size of the stabilisation bias is considerably reduced. The presence of a cost-channel in the model, on the other hand, increases the stabilisation bias significantly. Finally, multi-period revisions to output and inflation, reduces the inefficiency associated with discretionary policy. |
| JEL: | E52 E58 E61 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:wat:wpaper:1008&r=cba |
| By: | Monnin, Pierre (Swiss National Bank); Jokipii, Terhi (Swiss National Bank) |
| Abstract: | This article studies the relationship between the degree of banking sector stability and the subsequent evolution of real output growth and inflation. Adopting a panel VAR methodology for a sample of 18 OECD countries, we find a positive link between banking sector stability and real output growth. This finding is predominantly driven by periods of instability rather than by very stable periods. In addition, we show that an unstable banking sector increases uncertainty about future output growth. No clear link between banking sector stability and inflation seems to exist. We then argue that the link between banking stability and real output growth can be used to improve output growth forecasts. Using Fed forecast errors, we show that banking sector stability (instability) results in a significant underestimation (overestimation) of GDP growth in the subsequent quarters. |
| Keywords: | Banking sector stability; real output growth; output growth forecasts |
| JEL: | E20 E44 G21 |
| Date: | 2010–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:snbwpa:2010_005&r=cba |
| By: | Duo Qin (Queen Mary, University of London); Xinhua He (Chinese Academy of Social Sciences); Yimeng Liu (Beijing Normal University) |
| Abstract: | This is a comparative study on the historical experience of real effective exchange rate (REER) misalignment of Japanese yen, Deutsche mark, Singapore dollar and Taiwan dollar, with regard to the recent dispute over the Renminbi (RMB) valuation. Panel-based misalignment estimates of the four economies show that net foreign asset build-up does not necessarily result in currency misalignment, and the recent misalignment of RMB is not unprecedented in terms of magnitude, duration or currency coverage, whereas volatility in REER misalignment is likely to propagate to inflation of the home economy concerned. The assertion of 'RMB rate manipulation' thus lacks empirical support. |
| Keywords: | REER misalignment, RMB, Yen, D-mark, Singapore dollar, Taiwan dollar |
| JEL: | F31 F41 O57 C23 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp667&r=cba |
| By: | Dai, Meixing; Sidiropoulos, Moïse; Spyromitros, Eleftherios |
| Abstract: | This paper examines the issues of institutional quality and central bank transparency through the interaction of monetary and fiscal policies. We have found that the effects of transparency and corruption on macroeconomic performance and volatility depend on the relative importance of the marginal supply-side effects of distortionary tax and corruption, the degree of central bank conservativeness and/or the initial degree of opacity about central bank preferences. If the marginal effect of tax is relatively important, more opacity might induce higher level and volatility of inflation when the central bank is sufficiently conservative. Furthermore, opacity and tolerated corruption can mutually reinforce or weaken each other’s effects on the level and volatility of inflation. Transparency is generally a better strategy when the central bank is conservative. However, there could be a case for opacity in order to compensate for the undesirable macroeconomic effects of corruption when the central bank is liberal. |
| Keywords: | Central bank transparency; central bank conservativeness; fiscal bias; distortionary tax; institutional quality (corruption). |
| JEL: | D73 H50 E58 E52 E63 E61 |
| Date: | 2010–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23766&r=cba |
| By: | Dai, Meixing; Sidiropoulos, Moïse |
| Abstract: | In this paper, we study how the interactions between central bank transparency and fiscal policy affect macroeconomic performance and volatility, in a framework where productivity-enhancing public investment could improve future growth potential. We analyze the effects of central bank’s opacity (lack of transparency) according to the marginal effect of public investment by considering the Stackelberg equilibrium where the government is the first mover and the central bank the follower. We show that the optimal choice of tax rate and public investment, when the public investment is highly productivity-enhancing, eliminates the effects of distortionary taxation and fully counterbalance both the direct and the fiscal-disciplining effects of opacity, on the level and variability of inflation and output gap. In the case where the public investment is not sufficiently productivity-enhancing, opacity could still have some disciplining effects as in the benchmark model, which ignores the effects of public investment. |
| Keywords: | Distortionary taxes; output distortions; productivity-enhancing public investment; central bank transparency (opacity); fiscal disciplining effect. |
| JEL: | E62 H21 E58 E52 E63 G30 |
| Date: | 2010–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23704&r=cba |
| By: | Matthieu Bussière; Sweta c Saxena; Camilo Tovar |
| Abstract: | The impact of currency collapses (ie large nominal depreciations or devaluations) on real output remains unsettled in the empirical macroeconomic literature. This paper provides new empirical evidence on this relationship using a dataset for 108 emerging and developing economies for the period 1960-2006. We provide estimates of how these episodes affect growth and output trend. Our main finding is that currency collapses are associated with a permanent output loss relative to trend, which is estimated to range between 2% and 6% of GDP. However, we show that such losses tend to materialise before the drop in the value of the currency, which suggests that the costs of a currency crash largely stem from the factors leading to it. Taken on its own (ie ceteris paribus) we find that currency collapses tend to have a positive effect on output. More generally, we also find that the likelihood of a positive growth rate in the year of the collapse is over two times more likely than a contraction; and that positive growth rates in the years that follow such episodes are the norm. Finally, we show that the persistence of the crash matters, ie one-time events induce exchange rate and output dynamics that differ from consecutive episodes. |
| Keywords: | currency crisis, nominal devaluations, nominal depreciations, exchange rates, real output growth, recovery from crises |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:314&r=cba |
| By: | Alexander Subbotin (Centre d'Economie de la Sorbonne); Thierry Chauveau (Centre d'Economie de la Sorbonne) |
| Abstract: | This paper studies the effects of multiple investment horizons and investors' bounded rationality on the price dynamics. We consider a pure exchange economy with one risky asset, populated with agents maximizing CRRA-type expected utility of wealth over discrete investment periods. An investor's demand for the risky asset may depend on the historical returns, so that our model encompasses a wide range of behaviorist patterns. The necessary conditions, under which the risky return can be a stationary iid process, are established. The compatibility of these conditions with different types of demand functions in the heterogeneous agents' framework are explored. We find that conditional volatility of returns cannot be constant in many generic situations, especially if agents with different investment horizons operate on the market. In the latter case the return process can display conditional heteroscedasticity, even if all investors are so-called "fundamentalists" and their demand for the risky asset is subject to exogenous iid shocks. We show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns, in particular, mean-reversion and volatility clustering. |
| Keywords: | Asset pricing, heterogeneous agents, multiple investment scales, volatility clustering. |
| JEL: | G10 G14 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10048&r=cba |
| By: | Thierry Chauveau (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Alexander Subbotin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This paper studies the effects of multiple investment horizons and investors' bounded rationality on the price dynamics. We consider a pure exchange economy with one risky asset, populated with agents maximizing CRRA-type expected utility of wealth over discrete investment periods. An investor's demand for the risky asset may depend on the historical returns, so that our model encompasses a wide range of behaviorist patterns. The necessary conditions, under which the risky return can be a stationary iid process, are established. The compatibility of these conditions with different types of demand functions in the heterogeneous agents' framework are explored. We find that conditional volatility of returns cannot be constant in many generic situations, especially if agents with different investment horizons operate on the market. In the latter case the return process can display conditional heteroscedasticity, even if all investors are so-called "fundamentalists" and their demand for the risky asset is subject to exogenous iid shocks. We show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns, in particular, mean-reversion and volatility clustering. |
| Keywords: | Asset pricing, heterogeneous agents, multiple investment scales, volatility clustering. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00497427_v1&r=cba |
| By: | Peter Tillmann (Justus Liebig University Gießen) |
| Abstract: | We introduce heterogeneity into a monetary policy committee by allowing the degree of model uncertainty to differ across members. It is shown that in this framework the stage at which members reach consensus matters. An aggregation protocol under which members only average policy deemed optimal from each member’s point of view leads to more volatility compared to an alternative protocol in which members agree on a common worst-case scenario from which optimal policy is then derived. The reason is that inflation, output and the interest rate are convex functions of each member’s idiosyncratic degree of model uncertainty. If the degree of model uncertainty becomes more heterogenous, inflation volatility falls due to more vigorous stabilization policy. The degree of heterogeneity across members is therefore an important determinant of macroeconomic volatility. Interestingly, the implications for the committee design under a min-max approach to model uncertainty are identical to those derived from a Bayesian approach. |
| Keywords: | Robustness, Model Uncertainty, Monetary Policy Committee, Optimal Monetary Policy |
| JEL: | E31 E32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201021&r=cba |
| By: | Danziger, Leif (Ben Gurion University) |
| Abstract: | This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provides a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty. |
| Keywords: | uniform staggering, nonuniform staggering, monetary policy shocks, strategic substitutability, wage contracts, contract duration |
| JEL: | E31 E32 J41 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5023&r=cba |
| By: | Luc Laeven; Fabian Valencia |
| Abstract: | This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries. |
| Date: | 2010–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/146&r=cba |
| By: | Sandra Schmidt; Dieter Nautz |
| Abstract: | This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of in- dividual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's in- terest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis. |
| Keywords: | Central bank communication, Interest rate forecasts, Survey expectations, Panel random coefficient model |
| JEL: | E47 E52 E58 C23 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-036&r=cba |
| By: | Landais, Bernard |
| Abstract: | Abstract The monetary policy, especially the American one, can be blamed for the remote role (2002-2004) it played in the creation of the speculative bubble which led to a financial crisis. It also has a part of the responsibility through its restrictive direction during the 2004-2006 period; this time, a direction shared by other central banks. Finally, it is more immediately involved through its lack of clear-sightedness and responsiveness in the first months of the recession. |
| Keywords: | Economic crisis; Financial crisis; Monetary Policy; Taylor Rule;Taylor gap; Interest Term Spread; Recession |
| JEL: | E0 E58 E52 |
| Date: | 2010–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23769&r=cba |
| By: | Davide Furceri (OCDE - Organisation de coopération et de développement économiques - OCDE); Aleksandra Zdzienicka-Durand (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | The aim of this paper is to assess the consequences of banking crises for public debt. Using an unbalanced panel of 154 countries from 1980 to 2006, the paper shows that banking crises are associated with a significant and long- lasting increase in government debt. The effect is a function of the severity of the crisis. In particular, we find that for severe crises, comparable to the most recent one in terms of output losses, banking crises are followed by a medium-term increase of about 37 percentage points in the government gross debt-to-GDP ratio. We also find that the debt ratio increased more in countries with a worse initial fiscal position (in terms of the gross debt-to-GDP ratio) and with a higher share of foreign debt. |
| Keywords: | Output Growth, Financial Crisis, CEECs |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00497925_v1&r=cba |
| By: | Cao, Jin |
| Date: | 2010–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:dissen:11161&r=cba |
| By: | Zisimos Koustas (Department of Economics, Brock University); Jean-Francois Lamarche (Department of Economics, Brock University) |
| Abstract: | This paper extends the work in Orphanides (2003) by re-examining the empirical evidence for a Taylor rule in a nonlinear framework. In doing so, it updates the Greenbook dataset used by the afore men- tioned author to the most recent available period. A three-regime threshold regression model is utilized to capture the possibly asymmetric policy reaction function used by the U.S. Federal Reserve. The theoretical foundations for such an approach to monetary policy are discussed in Orphanides and Wilcox (2002). Our results indicate that the estimated Taylor rule for the U.S., based on real-time Greenbook data for the period 1982:3-2003:4, is probably nonlinear. |
| Keywords: | Thresholds; Nonlinear Models; Taylor Rule; Real-Time Data |
| JEL: | C12 C13 C87 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:brk:wpaper:1005&r=cba |
| By: | Kyriakos C. Neanidis; Christos S. Savva |
| Abstract: | Using a GARCH model we provide evidence that higher inflation uncertainty leads to higher inflation in the new European Union (EU) member states and candidate countries only prior to EU accession. During EU accession and entry inflation uncertainty has no effect on mean inflation. This result supports the consideration of policy regime shifts in assessing the nominal uncertainty-average inflation relationship. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:146&r=cba |
| By: | Domenico Giannone; Jérôme Henry; Magdalena Lalik; Michèle Modugno |
| Abstract: | This paper describes how we constructed a real time database for the euro area covering more than 200 series regularly published in the European Central Bank Monthly Bulletin, as made available ahead of publication to the Governing Council members before their first meeting of the month. We describe the database in details and study the properties of the euro area real-time data flow and data revisions, also providing comparisons with the United States and Japan. We finally illustrate how such revisions can contribute to the uncertainty surrounding key macroeconomic ratios and the NAIRU. |
| Keywords: | real-time; euro area; revisions; database |
| JEL: | C01 C82 E24 E58 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/59649&r=cba |
| By: | Kyriakos C. Neanidis; Christos S. Savva |
| Abstract: | We analyze the causal effects of real and nominal macroeconomic uncertainty on inflation and output growth and examine whether these effects vary with the level of inflation and location on the business cycle. Employing a bivariate Smooth Transition VAR GARCH-M model for the G7 countries during the period 1957- 2009, we find strong nonlinearities in these effects. First, uncertainty regarding the output growth rate is related with a higher average growth rate mostly in the low-growth regime, supporting the theory of “creative destruction”. Second, higher inflation uncertainty induces lower growth rates, increasingly so at the high-inflation regime. Third, real and nominal uncertainties have mixed effects on average inflation. Nevertheless, there is a trend in favour of the Cukierman- Meltzer hypothesis in the high-inflation regime. Our results can be viewed as offering an explanation for the often mixed and ambiguous findings in the literature. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:145&r=cba |
| By: | Sabine Herrmann; Dubravko Mihaljek |
| Abstract: | This paper studies the nature of spillover effects in bank lending flows from advanced to the emerging market economies and identifies specific channels through which such effects occur. Based on a gravity model we examine a panel data set on cross-border bank flows from 17 advanced to 28 emerging market economies in Asia, Latin America and central and eastern Europe from 1993 to 2008. The empirical analysis suggests that global as well as country specific factors are significant determinants of cross-border bank flows. Greater global risk aversion and expected financial market volatility seem to have been the most important factors behind the decrease in cross-border bank flows during the crisis of 2007-08. The decrease in cross-border loans to central and eastern Europe was more limited compared to Asia and Latin America, in large measure because of the higher degree of financial and monetary integration in Europe, and relatively sound banking systems in the region. These results are robust to various specification, sub-samples and econometric methodologies. |
| Keywords: | gravity model, cross-border bank flows, financial crises, emerging market economies, spillover effects, panel data |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:315&r=cba |
| By: | Lanne, Markku; Luoma, Arto; Luoto, Jani |
| Abstract: | In this paper, we propose a Bayesian estimation and prediction procedure for noncausal autoregressive (AR) models. Specifically, we derive the joint posterior density of the past and future errors and the parameters, which gives posterior predictive densities as a byproduct. We show that the posterior model probability provides a convenient model selection criterion and yields information on the probabilities of the alternative causal and noncausal specifications. This is particularly useful in assessing economic theories that imply either causal or purely noncausal dynamics. As an empirical application, we consider U.S. inflation dynamics. A purely noncausal AR model gets the strongest support, but there is also substantial evidence in favor of other noncausal AR models allowing for dependence on past inflation. Thus, although U.S. inflation dynamics seem to be dominated by expectations, the backward-looking component is not completely missing. Finally, the noncausal specifications seem to yield inflation forecasts which are superior to those from alternative models especially at longer forecast horizons. |
| Keywords: | Noncausality; Autoregression; Bayesian model selection; Forecasting |
| JEL: | C52 E31 C22 C11 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23646&r=cba |
| By: | Lanne, Markku; Luoto, Jani; Saikkonen, Pentti |
| Abstract: | In this paper, we propose a simulation-based method for computing point and density forecasts for univariate noncausal and non-Gaussian autoregressive processes. Numerical methods are needed to forecast such time series because the prediction problem is generally nonlinear and no analytic solution is therefore available. According to a limited simulation experiment, the use of a correct noncausal model can lead to substantial gains in forecast accuracy over the corresponding causal model. An empirical application to U.S. inflation demonstrates the importance of allowing for noncausality in improving point and density forecasts. |
| Keywords: | Noncausal autoregression; density forecast; inflation |
| JEL: | C53 C63 E31 C22 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23648&r=cba |
| By: | Alexander L. Baranovski |
| Abstract: | In this paper we give a generalized model of the interest rates term structure including Nelson-Siegel and Svensson structure. For that we introduce a continuous m-factor exponential-polynomial form of forward interest rates and demonstrate its considerably better performance in a fitting of the zero-coupon curves in comparison with the well known Nelson-Siegel and Svensson ones. In the sequel we transform the model into a dynamic model for interest rates by designing a switching dynamical system of the considerably reduced dimension n < m generating the forward rate curves in form a càdlàg function. A system is described by n-th order linear differential equation driven by a stochastic or chaotic shot noise. From fitted forward rates we specify the parameters of the switching system and discuss perspectives of our models to produce term-structure forecasts at both short and long horizons. |
| Keywords: | forward interest rates, shot noise processes, switching dynamical systems, chaotic Brownian subordination, chaotic maps |
| JEL: | C13 C20 C22 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-037&r=cba |
| By: | Dramane Coulibaly (Centre d'Economie de la Sorbonne); Hubert Kempf (Centre d'Economie de la Sorbonne - Paris School of Economics et Banque de France) |
| Abstract: | In this paper, we empirically examine the effect of inflation targeting on the exchange rate pass-through to prices in emerging countries. We use a panel VAR that allows us to use the larger data set on twenty-seven emerging countries (fifteen inflation targeters and twelve inflation nontargeters). Our evidence suggests that inflation targeting in emerging countries has helped to reduce the pass-through to various price indexes (import prices, producer prices and consumer prices) from a higher level to a new level that is significantly different from zero. The variance decomposition shows that the contribution of exchange rate shocks to prices fluctuations is more important in emerging targeters compared to nontargeters, and the contribution of exchange rate shocks to price fluctuations in emerging targeters declines after adopting inflation targeting. |
| Keywords: | Inflation targeting, exchange rate Pass-through, panel VAR. |
| JEL: | E31 E52 F41 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10049&r=cba |
| By: | Dramane Coulibaly (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Hubert Kempf (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Banque de France - Direction de la Recherche) |
| Abstract: | In this paper, we empirically examine the effect of inflation targeting on the exchange rate pass-through to prices in emerging countries. We use a panel VAR that allows us to use the larger data set on twenty-seven emerging countries (fifteen inflation targeters and twelve inflation nontargeters). Our evidence suggests that inflation targeting in emerging countries has helped to reduce the pass-through to various price indexes (import prices, producer prices and consumer prices) from a higher level to a new level that is significantly different from zero. The variance decomposition shows that the contribution of exchange rate shocks to prices fluctuations is more important in emerging targeters compared to nontargeters, and the contribution of exchange rate shocks to price fluctuations in emerging targeters declines after adopting inflation targeting. |
| Keywords: | Inflation targeting, exchange rate pass-through, panel VAR. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00497446_v1&r=cba |
| By: | Piyaporn Sodsriwiboon; Florence Jaumotte |
| Abstract: | The paper examines the causes, consequences, and potential cures of the large current account deficits in the Southern Euro Area (SEA). These were mostly driven by a decline in private saving rates. But it was the European Monetary Union and the Euro, which enabled these countries to maintain investment rates, and thus run larger current account deficits, by improving their access to the international pool of saving. The paper finds that the deficits in SEA in 2008 were larger than can be explained by fundamentals, though the situation varies substantially across countries. It also finds that although the global financial crisis has started to force some unwinding, the current account deficits are expected to remain high in the medium run, though again with substantial variation across countries. The paper argues these large external deficits pose risks to the economy and therefore matter, even in a currency union, and discusses some policy options to reduce them. |
| Date: | 2010–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/139&r=cba |
| By: | M Morys; |
| Abstract: | Drawing on monthly data for 12 European countries, this paper asks whether countries under the Classical Gold Standard followed the so-called “rules of the game” and, if so, whether the external constraint implied by these rules was more binding for the periphery than for the core. Our econometric focus is a probit estimation of the central bank discount rate behaviour. Three main findings emerge: First, all countries followed specific rules but rules were different for core countries as opposed to peripheral countries. The discount rate decisions of core countries were motivated by keeping the exchange-rate within the gold points. In stark contrast, the discount rate decisions of peripheral countries reflected changes in the domestic cover ratio. The main reason for the different rules was the limited effectiveness of the discount rate tool for peripheral countries which resulted in more frequent gold point violations. Consequently, peripheral countries relied on high reserve levels and oriented their discount rate policy towards maintaining the reserve level. Second, there was a substantial amount of discretionary monetary policy left to all countries, even though we find that core countries enjoyed marginally more liberty in setting their discount rate than peripheral countries. Third, interest rate decisions were influenced more by Berlin than by London, suggesting that the European branch of the Classical Gold Standard was less London-centered than hitherto assumed. |
| Keywords: | gold standard, rules of the game, balance-of-payment adjustment, central banking |
| JEL: | E4 E5 E6 F3 N13 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:cherry:10/01&r=cba |
| By: | D. Filiz Unsal; Rafael Portillo; Andrew Berg |
| Abstract: | Many low-income countries continue to describe their monetary policy framework in terms of targets on monetary aggregates. This contrasts with most modern discussions of monetary policy, and with most practice. We extend the new-Keynesian model to provide a role for “M†in the conduct of monetary policy, and examine the conditions under which some adherence to money targets is optimal. In the spirit of Poole (1970), this role is based on the incompleteness of information available to the central bank, a pervasive issues in these countries. Ex-ante announcements/forecasts for money growth are consistent with a Taylor rule for the relevant short-term interest rate. Ex-post, the policy maker must choose his relative adherence to interest rate and money growth targets. Drawing on the method in Svensson and Woodford (2004), we show that the optimal adherence to ex-ante targets is equivalent to a signal extraction problem where the central bank uses the money market information to update its estimate of the state of the economy. We estimate the model, using Bayesian methods, for Tanzania, Uganda (both de jure money targeters), and Ghana (a de jure inflation targeter), and compare the de facto adherence to targets with the optimal use of money market information in each country. |
| Keywords: | Central bank policy , Cross country analysis , Economic models , Ghana , Low-income developing countries , Monetary aggregates , Monetary policy , Money , Tanzania , Uganda , |
| Date: | 2010–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/134&r=cba |
| By: | Dag Kolsrud and Ragnar Nymoen (Statistics Norway) |
| Abstract: | We derive aggregate supply (AS) relationships for an intermediate-run macro model.The wage-price spiral provides the conceptual framework for a synthesis of different contesting theoretical and empirical perspectives on the AS curve: the Phillips curve model (PCM) and the wage-price equilibrium correction model (WPECM). The generalized AS curve is grafted into a small macro model. We analyze stability conditions, steady states, and dynamic solutions, using a combination of algebra and simulations. The specification of the AS curve, as a PCM or a WPECM, is shown to be important for all aspects of the model’s solution, but within each model also the detailed parameterization is of qualitative importance. For example, endogenous cyclical fuctuations are typical for both nominal and real variables, e.g. inflation and unemployment. |
| Keywords: | AS-AD; cycles; dynamics; equilibrium correction; macroeconomics; nominal rigidity; Phillips curve; unemployment; wage-price spiral. |
| JEL: | E24 E30 J50 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:625&r=cba |
| By: | Volodymyr Tulin; Kornélia Krajnyák |
| Abstract: | In this paper, we derive two new measures of international relative prices for Norway. Developments in these new measures follow rather closely movements in the CPI-based real effective exchange rate through the 1990s, but diverge after 2000—suggesting that the costs of living in Norway relative to its trading partners have risen in the recent years more than the real effective exchange rate would indicate. |
| Keywords: | Consumer price indexes , Cost of living , Norway , Price structures , Prices , Real effective exchange rates , |
| Date: | 2010–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/133&r=cba |
| By: | David Norman (Reserve Bank of Australia); Anthony Richards (Reserve Bank of Australia) |
| Abstract: | This paper estimates a range of single-equation models of inflation for Australia. We find that traditional models, such as the expectations-augmented standard Phillips curve or mark-up models, outperform the more micro-founded New-Keynesian Phillips curve (NKPC) in explaining trimmed mean inflation, both in terms of in-sample fit and significance of coefficients. This in large part reflects the weak instruments problem in the estimation of the NKPC, and is partly corrected by including a direct measure of inflation expectations, but we still find that the unemployment rate or growth in marginal costs (unit labour cost and import prices) provides a better fit than either the output gap or level of real marginal costs. These traditional models also perform well in out-of-sample tests, relative to alternative models and some common benchmarks, with the standard Phillips curve clearly superior to these benchmarks on this test. As inflation has become better anchored and hence less variable, the magnitude of the errors of the single-equation models has declined, although the explanatory power (in terms of R-squared) has fallen together with this greater stability. We also investigate the empirical importance of some other variables that are commonly cited as determinants of inflation, and find little evidence that either commodity prices or the growth rate of money directly influence Australian underlying inflation. |
| Keywords: | inflation; modelling |
| JEL: | C53 E31 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2010-03&r=cba |
| By: | Jose MOURELLE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Banco Central del Urugay) |
| Abstract: | The objective of this paper is analyse the determinants of the Argentine crisis of 2001-2002. In particular we analyse the role of macroeconomic policies during the crisis. The crisis coincided with a sudden stop of capital flows.We use a VAR model to better understand the shocks and mechanisms by which the crisis propagated throughout the economy. We find evidence that Argentine crisis was the consequence of an external financial shock, expressed by the increase in sovereign spread, amplified by local vulnerabilities. Fiscal policy, that faced financial restrictions, was tightened and the economy suffered additional contractionary fiscal shocks. The recession was exacerbated by a real exchange rate shock, that was appreciated. This result is the consequence of the rigid fixed exchange rate used by Argentina and the lack of coordination inside the Mercosur agreement where Brazil devaluate while Argentina not. Our analysis suggests the convenience of generate an institutional framework that allows a flexible use of fiscal and exchange rate policies to confront with adverse external shocks. |
| Keywords: | crisis, Argentina, country risk, fixed exchange rates, procyclical fiscal policy |
| JEL: | E32 F33 F34 F41 |
| Date: | 2010–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2010024&r=cba |
| By: | Jeannine Bailliu; Patrick Blagrave |
| Abstract: | To better understand the dynamics of the Chinese economy and its interaction with the global economy, the authors incorporate China into an existing model for the G-3 economies (i.e., the United States, the euro area, and Japan), paying particular attention to modelling the exchange rate and monetary policy in China. Their findings suggest that the Chinese economy adjusts more slowly to shocks, compared to the large advanced economies, because monetary policy is less effective and the real exchange rate more persistent. In addition, the authors’ model underscores the importance of spillovers from China to the G-3 economies, and vice versa, thus highlighting the need to analyze the Chinese economy in a global context. |
| Keywords: | Economic models; International topics; Business fluctuations and cycles; Exchange rate regimes |
| JEL: | E32 E52 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:10-17&r=cba |
| By: | Joseph Crowley |
| Abstract: | Inflation followed a strikingly uniform pattern in all countries of the Middle East, North Africa, and Central Asia during the period 1996-2009, falling until about 2000 and then rising. International fuel prices do not help explain this pattern. This conclusion is robust even when different cross sections of countries are tested or when different regression variables are included. The pattern of inflation is explained mainly by past inflation, the strength of the US dollar, US inflation, and—depending on the subset of countries analyzed—monetary and exchange rate policies and nonfuel commodity prices. |
| Keywords: | Commodity prices , Cross country analysis , Dollarization , Economic models , Exchange rate policy , Exchange rates , Inflation , Middle East and Central Asia , Monetary policy , Money supply , North Africa , Oil prices , Time series , |
| Date: | 2010–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/135&r=cba |
| By: | Abdullah Almounsor |
| Abstract: | Yemen has had a high and volatile rate of inflation in recent years. This paper studies the underlying determinants of inflation dynamics in Yemen using three different approaches: (i) a single equation model, (ii) a Structural Vector Autoregression Model, and (iii) a Vector Error Correction Model. The outcomes suggest that inflation dynamics in Yemen are driven by international price shocks, exchange rate depreciation, domestic demand shocks, and monetary innovations. The impact of international prices and exchange rate depreciation indicate a significant pass-through of import prices. In the short run, external shocks of international prices and the exchange rate account for most variations in inflation, but domestic shocks to money supply and domestic demand explain larger variations in the medium term. |
| Date: | 2010–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/144&r=cba |